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PARTNERSHIP

PARTNERSHIP

331
UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
I.CONTRACTOFPARTNERSHIP

A.DEFINITION

Q:Whatispartnership?

A: A contract whereby two or more personsbind


themselves to contribute money, property, or
industrytoacommonfund,withtheintentionof
dividingtheprofitsamongthemselves.

Note: Two or more persons may also form a


partnership for the exercise of a profession. (Art.
1767,NCC)

B.ELEMENTS

Q: What are the essential elements of a


partnership?

A:
1. Agreement to contribute money,
property or industry to a common fund
(mutual contribution to a common
stock);and
2. Intention to divide the profits among
the contracting parties (joint interest in
the profits). (Evangelista v. Collector of
Internal Revenue, G.R. No. L9996, Oct.
15,1987).

Q:Whataretherequisitesofapartnership?

A:ICJ
1. Intentiontocreateapartnership
2. Common fund obtained from
contributions
3. Jointinterestindividingtheprofits(and
losses)

Q:Whatarethecharacteristicsofapartnership?

A:BONCCPP
1. Bilateral it is entered into by two or
more persons and the rights and
obligations arising therefrom are
reciprocal
2. Onerouseachofthepartiesaspiresto
procure for himself a benefit through
thegivingofsomething
3. Nominate it has a special name or
designationinourlaw
4. Consensual perfected by mere
consent
5. Commutativetheundertakingofeach
of the partners is considered as the
equivalentofthatoftheothers
6. Principal its life does not depend on
theexistenceofanothercontract
7. Preparatorybecauseitisenteredinto
as a means to an end, i.e. to engage in
business
8. Fiduciary it is based on trust and
confidence

Q: Jose entered into a verbal agreement with


Franciscotoformapartnershipforthepurchase
ofcascoesforaproposedboatrentalbusiness.It
wasagreedthatFranciscowouldbuythecascoes
and each partner is to furnish such amount of
money as he could, and that the profits will be
divided proportionately. After Francisco
purchased a casco with the money advanced by
Jose, they undertook to draft the articles of
partnership and embody the same in an
authentic document. However, they did not
come to an agreement. So, Francisco returned
the money advanced by Jose, which the latter
received with an express reservation of all his
rightsasapartner.
1. Was there a partnership formed
betweenJoseandFrancisco?
2. If such partnership existed, was it
terminated by the receipt of Jose of
themoneyheadvanced?

A:
1. Yes. Both elements in a contract of
partnership exist: a) mutual
contributiontoacommonstock,andb)
a joint interest in the profits. If the
contractcontainsthesetwoelements,a
partnershiprelationresults,andthelaw
itself fixes the incidents of this relation
if the parties fail to do so. In this case,
therewasmoneyfurnishedbyJoseand
received by Francisco for the purchase
of the cascoes and there was also an
intention to divide the profits
proportionately between them. Thus,
there is a partnership by virtue of the
verbal agreement between Jose and
Francisco.

2. No. There was no clear intent on the


partofJose,inacceptingthemoney,to
relinquish his rights as a partner.
(Fernandez v. Dela Rosa, G.R. No. 413,
Feb.2,1903)

Q: Chim was the owner and manager of a


lumberyard.VicenteandTingparticipatedinthe
profits and losses. A contract of sawing lumber
was entered into by Chim, acting in his own
name, with Frank. At the time the contract was

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made, they were the joint proprietors and


operatorsofthesaidlumberyardengagedinthe
purchase and sale of lumber under the name
and style of Chim. In an action to recover the
balanceunderthecontractfiledbyFrankagainst
Chim, Vicente and Ting, the latter two alleged
that they are not Chims partners. Did Chim,
VicenteandTingformapartnership?

A: No. A simple business was formed by Chim


exclusively in his own name and under his
personal management and he effected every
transactioninhisnameandinthenamesofother
personsinterestedintheprofitsandlossesofthe
business. What has been formed is an accidental
partnershipofcuentasenparticipacion.

Note: Under the Code of Commerce, cuentas en


participacion means a sort of an accidental
partnership constituted in such a manner that its
existence was only known to those who had an
interest in the same, there being no mutual
agreement between the partners, and without a
corporatenameindicatingtothepublicinsomeway
that there were other people besides the one who
ostensibly managed and conducted the business,
governed under article 239 of the Code of
Commerce.(Bournsv.Carman,G.R.No.L2880,Dec.
4,1906)

INTENTTOCREATEAPARTNERSHIP

Q: Henry and Lyons are engaged in real estate


business and are coowners of a parcel of land.
Henry,withtheconsentofLyons,mortgagedthe
propertytoraisethefundssufficienttobuyand
developtheSanJuanEstate.Lyonsexpressedhis
desire not to be part of the development
project, but Henry, nevertheless, pursued the
business alone. When the business prospered,
Lyons demanded for a share in the business. Is
LyonsentitledtothesharesinSanJuanEstate?
A:No.Lyonshimselfmanifestedhisdesirenotto
be part of the development project. Thus, no
partnership was formed. The mortgage of the
land was immaterial to the existence of the
partnership. It is clear that Henry, in buying the
San Juan Estate, was not acting for any
partnership composed of himself and Lyons, and
the law cannot be distorted into a proposition
whichwouldmakeLyonsaparticipantinthisdeal
contrary to his express determination. (Lyons v.
Rosenstock,G.R.No.35469,Mar.17,1932)
332
Q: Catalino and Ceferino acquired a joint
tenancy over a parcel of land under a verbal
contract of partnership. It was stipulated that
each of the said purchasers should pay onehalf
ofthepriceandthatanequaldivisionshouldbe
madebetweenthemofthelandthuspurchased.
Despite Catalinos demand for an equal division
between them, Ceferino refused to do so and
even profited from the fruits of the land. Are
theypartnersorcoowners?
A:Theyarecoownersbecauseitdoesnotappear
thattheyenteredintoanycontractofpartnership
but only for the sole transaction of acquiring
jointlyorbymutualagreementofthelandunder
the condition that they would pay of the price
ofthelandandthatitbedividedequallybetween
them. (Gallemit v. Tabiliran, G.R. No. 5837, Sept.
15,1911)
COMMONFUND
Q: May a partnership be formed even if the
commonfundiscomprisedentirelyofborrowed
orloanedmoney?Whatwouldbetheliabilityof
thepartnersinsuchacase?
A: Yes. A partnership may be deemed to exist
among parties who agree to borrow money to
pursue a business and to divide the profits or
losses that may arise therefrom, even if it is
shownthattheyhavenotcontributedanycapital
of their own to a "common fund." Their
contribution may be in the form of credit or
industry, not necessarily cash or fixed assets.
Being partners, they are all liable for debts
incurred by or on behalf of the partnership. (Lim
Tong Lim v. Philippine Fishing Gear Industries,
Inc.,G.R.No.136448,Nov.3,1999)
SHAREINPROFITSANDLOSSES
Q: Mariano and Isabelo entered into a
partnership agreement wherein they are to
contribute P15,000 each for the purpose of
printing 95,000 posters. Isabelo was unable to
printenoughposterspursuanttotheagreement,
thus he executed in favor of Mariano a
promissorynoteinanamountequivalenttothe
unrealizedprofitduetoinsufficientprinting.The
whole amount became due but Isabelo
defaulted payment. Is Mariano entitled to file a
case for the recovery of the unrealized profit of
thepartnership?
A:No.Theessenceofapartnershipistosharein
the profits and losses, thus, Mariano should
shoulderthelosseswithIsabelo.(MoranJr.,v.CA,
G.R.No.L59956,Oct.31,1984)
Q: To form a lending business, it was verbally
agreedthatNoynoywouldactasfinancierwhile
CoryandKriswouldtakechargeofsolicitationof
CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

PARTNERSHIP

members and collection of loan payments. They
agreed that Noynoy would receive 70% of the
profitswhileCoryandKriswouldearn15%each.
Thepartiesexecutedthe'ArticlesofAgreement'
whichformalizedtheirearlierverbalagreement.
Later,NoynoyfiledacomplaintagainstCoryand
Kris for misappropriation of funds allegedly in
their capacities as Noynoys employees. In their
answer, Cory and Kris asserted that they were
partners and not mere employees of Noynoy.
What kind of relationship existed between the
parties?
A: A partnership was formed among the parties.
The "Articles of Agreement" stipulated that the
signatories shall share the profits of the business
in a 701515 manner, with Noynoy getting the
lion's share. This stipulation clearly proved the
establishmentofapartnership.(Santosv.Spouses
Reyes,G.R.No.135813,Oct.25,2001)
333
UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
Q:Joseconveyedhislotsinfavorofhisfoursons
in order for them to build their residences. His
sons sold the lots since they found the lots
impractical for residential purposes because of
high costs of construction. They derived profits
from the sale and paid income tax. The sons
were required to pay corporate income tax and
income tax deficiency, on the theory that they
formed an unregistered partnership or joint
venturetaxableasacorporation.Didthesiblings
formapartnership?
A:No.Theoriginalpurposewastodividethelots
for residential purposes. If later, they found out
that it is not feasible to build their residences on
the lots, they can dissolve the coownership by
reselling said lots. The division on the profit was
merely incidental to the dissolution of the co
ownership which was in the nature of things a
temporary state. (Obillos, Jr. v. CIR, G.R. No. L
68118,Oct.29,1985)
C.RULESTODETERMINEEXISTENCE
Q:Whataretherulestodeterminetheexistence
ofpartnership?

A:
1. Personswhoarenotpartnersastoeach
other are not partners as to third
persons.
2. Coownership/copossession does not
ofitselfestablishapartnership.
3. Sharing of gross returns does not of
itselfestablishapartnership.
4. Receipt of a person of a share in the
profitsisaprimafacieevidencethathe
is a partner, but not when received as
paymentfor:
a. Debtasinstallment
b. Wages
c. Annuity
d. Interestinaloan
e. Considerationforthesaleofa
goodwill

Note: in subparagraphs a e, the profits in the


business are not shared as profits of a partner as a
partner, but in some other respects or for some
otherpurpose.

Q: Distinguish partnership from co


ownership/copossession.

A:
PARTNERSHIP
COOWNERSHIP/
COPOSSESSION
Intenttoderiveprofits
Theprofitsmustbe
derivedfromthe
operationofthe
businessorundertaking
bythemembersofthe
associationandnot
merelyfromproperty
ownership.
Thecoownerssharein
theprofitsderived
incidenttothejoint
ownership.
Existenceoffiduciaryrelationship
Thereisawelldefined
fiduciaryrelationship
betweenthemas
partners.
Thereisnofiduciary
relationshipbetween
theparties.
Remedyfordispute
Theremedyforadispute
ordifferencebetween
themwouldbeanaction
fordissolution,
termination,and
accounting.
Theremedywouldbe
anaction,asfor
instance,fornon
performanceofa
contract.
Intent
Theremustbean
unmistakableintention
toformapartnership.
Thereisnointentto
formapartnership.

Q: A and B are coowners of an inherited


properties.Theyagreedtousethesaidcommon
properties and the income derived therefrom as
a common fund with the intention to produce
profitsfortheminproportiontotheirrespective
shares in the inheritance as determined in a
project of partition. What is the effect of such
agreementontheexistingcoownership?

A: The coownership is automatically converted


intoapartnership.Fromthemomentofpartition,
A and B, as heirs, are entitled already to their
respective definite shares of the estate and the
income thereof, for each of them to manage and

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dispose of as exclusively his own without the


intervention of the other heirs, and, accordingly,
he becomes liable individually for all the taxes in
connectiontherewith.

If,aftersuchpartition,anheirallowshissharesto
be held in common with his coheirs under a
single management to be usedwith the intentof
making profit thereby in proportion to his share,
therecanbenodoubtthat,evenifnodocument
orinstrumentwereexecutedforthepurpose,for
tax purposes, at least, an unregistered
partnership is formed. (Ona v. Commissioner of
Internalrevenue,45SCRA74[1972])

Q:Whatarethetypicalincidentsofpartnership?

A:
1. Thepartnersshareinprofitsandlosses.
(Arts.1767,179798)
2. They have equal rights in the
management and conduct of the
partnershipbusiness.(Art.1803)
334
CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

3. Every partner is an agent of


partnership, and entitled to bind the
other partners by his acts, for the
purposeofitsbusiness.(Art.1818)
4. Allpartnersarepersonallyliableforthe
debts of the partnership with their
separateproperty(Arts.1816,182224)
exceptlimitedpartners.
5. A fiduciary relationship exists between
thepartners.(Art.1807)
6. On dissolution, the partnership is not
terminated, but continues until the
windingupofpartnershipiscompleted.
(Art1828)

Q: What are the rules regarding distribution of


profitsandlosses?

A:
1. Distributionofprofits
a. Thepartnersshareintheprofits
accordingtotheiragreement
b. Intheabsenceofsuch:
i. Capitalistpartnerin
proportiontohiscontribution
ii. Industrialpartnerwhatis
justandequitableunderthe
circumstances

2. Distributionoflosses
a. The partners share in the losses
accordingtotheiragreement
b. In the absence of such, according
totheiragreementastoprofits
c. In the absence of profit
agreement, in proportion to his
capitalcontribution

Q:Whatistheruleregardingastipulationwhich
excludes a partner in the sharing of profits and
losses?

A:
GR:Stipulationisvoid.

XPN: Industrial partner is not liable for losses


[Art. 1797(2), NCC]. However, he is not
exempted from liability insofar as third
personsareconcerned.

Note:Lossisdifferentfromliability
If, besides his services the industrial partner has
contributed capital, he shall also receive a share
intheprofitsinproportiontohiscapital.

D.HOWPARTNERSHIPISFORMED

Q:Howarepartnershipsformed?

A: It is created by agreement of the parties


(consensual).

Note: There is no such thing as a partnership


created by law or by operation or implication of
law alone. (De Leon, Comments and cases on
Partnership,AgencyandTrust,p.13,2005ed.

Q: What are the formalities needed for the


creationofapartnership?

A:
GR:Nospecialformisrequiredforitsvalidity
orexistence.(Art.1771,NCC)

XPN: If property or real rights have been


contributedtothepartnership:
1. Personalproperty
a. LessthanP3,000maybeoral
b. P3,000ormoremustbe:
i. inapublicinstrument;and
ii. registered with SEC (Art.
1772,NCC)

Note: Even if the partnership


isnotregisteredwithSEC,the
partnership is still valid and
possesses a distinct
personality (Paras, Civil Code
of the Philippines Annotated,
Volume5,p.412,19696
th
ed)
2. Realpropertyorrealrightsmustbe:

PARTNERSHIP

a. in a public instrument (Art. 1771,
NCC)
b. withaninventoryofsaidproperty
i. signedbytheparties
ii. attached to the public
instrument(Art.1773,NCC)

Note: Everything must be


complied with; otherwise,
partnershipisvoidandhasno
juridical personality even as
between the parties (Art.
1773,NCC)
iii. registered in the Registry of
Property of the province,
where the real property is
found to bind third persons
(Paras,p.412)

3. Limited partnership must be


registered as such with SEC, otherwise,
it is not valid as a limited partnership
but may still be considered a general
partnership with juridical personality
(Paras, Civil Code of the Philippines
Annotated, Volume 5, p. 412, 1969 6
th

ed)

Q: If the requirements under Art. 1773, as


regards contribution of real property to a
partnership,hasnotbeencompliedwith,whatis
thestatusofthepartnership?
A: It is void. Nonetheless, a void partnership
underArt.1773,inrelationtoArt.1771NCC,may
still be considered by the courts as an ordinary
contract as regards the parties thereto from
whichrightsandobligationstoeachothermaybe
inferred and enforced. (Torres v. CA, G.R. No.
134559,Dec.91999)
Note:Torresv.CAdoesnotinvolvethirdpersons.
Q: What must be done in order that the
partnership may be effective as against third
persons whenever immovable property is
contributed?
335
UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
A: To be effective against 3
rd
parties, partnership
must be registered in the Registry of Property of
theprovincewheretherealpropertycontributed
islocated.(Art.1771,NCC)
Q:Cantherebeapartnershipbasedonaverbal
agreement, and without such agreement being
registeredwithSEC?
A: Yes. Article 1772 NCC requires that
partnerships with a capital of P3,000 or more
mustregisterwithSEC.However,thisregistration
requirement is not mandatory. Article 1768 NCC
explicitly provides that the partnership retains its
juridicalpersonalityevenifitfailstoregister.The
failure to register the contract of partnership
does not invalidate the same as among the
partners,solongasthecontracthastheessential
requisites, because the main purpose of
registrationistogivenoticetothirdparties,andit
can be assumed that the members themselves
knew of the contents of their contract. Non
compliance with this directory provision of the
lawwillnotinvalidatethepartnership.
A partnership may be constituted in any form,
except where immovable property of real rights
are contributed thereto, in which case a public
instrument shall be necessary. Hence, based on
the intention of the parties, a verbal contract of
partnership may arise. (SungaChan v. Chua, G.R.
No.143340,Aug.15,2001)
Note: Registration is merely for administration and
licensing purposes; hence, it shall not affect the
liabilityofthepartnershipandthemembersthereof
tothirdpersons.[Art.1772,(2),NCC]
Q: A partnership was entered into between
Mauricio and Severino to operate a fishpond.
Neither partner contributed a fishpond or a real
right over any fish pond. Their capital
contributions were in cash in the amount of
P1,000each.Whilethepartnershipcontractwas
doneinapublicinstrument,noinventoryofthe
fishpondtobeoperatedwasattachedinthesaid
instrument. Is there a valid contract of
partnership?
A: Yes. There is a valid contract of partnership
despite the lack of inventory. The purpose of the
partnership was not to engage in the fishpond
business but to operate a fishpond. Neither said
fishpond nor a real right to any fish pond was
contributedtothepartnershiporbecomepartof
the capital thereof. (Agad v. Mabato, G.R. No. L
24193,June28,1968)
E.PARTNERSHIPTERM
Q:Whatisapartnershipwithafixedterm?

A: It is one in which the term of its existence has


beenagreeduponbythepartnerseither:
1. Expresslythereisadefiniteperiod
2. Impliedly a particular enterprise or
transactionisundertaken

Note:Themereexpectationthatthebusinesswould
besuccessfulandthatthepartnerswouldbeableto

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recoup their investment is not sufficient to create a


partnershipforaterm.

Q: Can the partners fix any term in the


partnershipcontract?

A: Yes. The partners shall be bound to remain


undersuchrelationforthedurationoftheterm.

Q: What is the effect when the fixed term has


expired?

A: The expiration of the term fixed or the


accomplishment of the particular undertaking
specified will cause the automatic dissolution of
thepartnership.

Q:Whendoesapartnershipcommencetoexist?
A: A partnership commences from the time of
execution of the contract if there is no contrary
stipulation as to the date of effectivity of the
same.
NOTE: Registration to SEC is not essential to give it
juridicalpersonality.
There is no time limit prescribed by law for the
lifeofapartnership.
Q:Whatisafuturepartnership?
A: It is a kind of partnership where the partners
may stipulate some other date for the
commencement of the partnership. Persons who
enter into a future partnership do not become
partners until or unless the agreed time has
arrivedorthecontingencyhashappened.
NOTE: It is a partnership created by implied
agreement, the continued existence of which will
depend upon the mutual desire and consent of the
partners.
Q:Whenisapartnershipatwillterminate?
A: It may be lawfully terminated at any time by
theexpresswillofallthepartnersoranyofthem.
Q:Howisapartnershipatwilldissolved?
A: Any one of the partners may dictate a
dissolutionofapartnershipatwill.
336
Note: The partner who wants the partnership
dissolved must do so in good faith, not that the
attendance of bad faith can prevent the dissolution
of the partnership, but to avoid the liability for
damagestootherpartners.
CLASSIFICATIONSOFPARTNERSHIP
Q:Statetheclassificationsofpartnership.
A:Asto:
1. Object
a. Universalpartnership
i. of all present property (Art.
1778, NCC) comprises the
following:
property which belonged
toeachofthepartnersat
the time of the
constitution of the
partnership
profits which they may
acquire from all property
contributed
ii. ofallprofits(Art.1780,NCC)
comprises all that the
partners may acquire by their
industry or work during the
existenceofthepartnership
b. Particular partnership It is one
which has for its object,
determinate things, their use and
fruits, or a specific undertaking or
the exercise of a profession or a
vocation.(Art.1783,NCC)

2. Liabilityofpartners
a. General partnership One where
all partners are general partners
whoareliableevenwithrespectto
their individual properties, after
the assets of the partnership have
beenexhausted(Paras,p.411)
b. Limited partnership One formed
by 2 or more persons having as
members one or more general
partners and one or more limited
partners, the latter not being
personallyliablefortheobligations
ofthepartnership.

3. Duration
a. Partnership at will Partnership
for a particular undertaking or
venture which may be terminated
anytimebymutualagreement.
b. Partnership with a fixed period
Thetermforwhichthepartnership
is to exist is fixed or agreed upon
or one formed for a particular
undertaking.

4. Legalityofexistence
a. Dejurepartnership
b. Defactopartnership

CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

PARTNERSHIP

5. Representationtoothers
a. Ordinaryorrealpartnership
b. Ostensible or partnership by
estoppel When two or more
persons attempt to create a
partnershipbutfailtocomplywith
the legal personalities essential for
juridical personality, the law
considers them as partners, and
the association is a partnership
insofar as it is favorable to third
persons,byreasonoftheequitable
principle of estoppel (MacDonald
et. al. v. Natl. City Bank of New
York, G.R. No. L7991, May 21,
1956)

6. Publicity
a. Secret partnership Partnership
thatisnotknowntomanybutonly
astoitspartners.
b. Notorious or open partnership It
is known not only to the partners,
buttothepublicaswell.

7. Purpose
a. Commercial or trading One
formed for the transaction of
business.

b. Professional or nontrading One


formed for the exercise of a
profession

Q:Whatarethedifferentkindsofpartnership
undertheSpanishCivilCode?

A:
1. Sociedad Anonima similar to
anonymouspartnership
2. SociedadColectivawhichisgeneralor
collectivepartnership
3. Sociedad de Cuentas en Participacion
jointaccountpartnership
4. SociedadMercantileRegularColectiva
mercantilepartnershipcompany
5. SociedadLeonilapartnershipbywhich
theentireprofitsshouldbelongtosome
ofthepartnersinexclusionoftherest

Q:Whomaybepartners?

A:
GR: Any person capacitated to contract may
enterintoacontractofpartnership.
337
XPNs:
1. Persons whoare prohibited from giving
each other any donation or advantage
cannot enter into a universal
partnership.(Art.1782,NCC)
2. Personssufferingfromcivilinterdiction
3. Persons who cannot give consent to a
contract:
a. Minors
b. Insanepersons
c. Deafmutes who do not knowhow
towrite

Q:Whatistheprincipleofdelectuspersonae?

A:Thisreferstotherulethatis inherentinevery
partnership, that no one can become a member
of the partnership association without the
consentofallthepartners.

Note:Evenifapartnerwillassociateanotherperson
in his share in the partnership, the associate shall
not be admitted into the partnership without the
consent of all the partners, even if the partner
havinganassociateshouldbeamanager(Art.1804,
NCC).

Q: May a corporation enter into a partnership


withanothercorporation?

A: As a rule, it is illegal for two corporations to


enter into a partnership. Nevertheless, a
corporation may enter into a joint venture with
anotherifthenatureoftheventureisinlinewith
the business authorized by its charter. (Tuason v.
Bolaos,G.R.No.L4935,May28,1954)

Q:Whatarethedifferentkindsofpartners?

A:
1. CapitalistContributesmoneyor
propertytothecommonfund
2. Industrial Contributes only his
industryorpersonalservice
3. General One whose liability to 3
rd

persons extends to his separate or


personalproperty
4. Limited One whose liability to 3
rd

persons is limited to his capital


contribution
5. Managing Manages the affairs or
businessofthepartnership
6. Liquidating Takes charge of the
winding up of partnership affairs upon
dissolution
7. Partner by estoppel Is not really a
partnerbutisliableasapartnerforthe
protectionofinnocent3
rd
persons
8. Continuing partner Continues the
business of a partnership after it has
been dissolved by reason of the
admissionofanewpartner,retirement,

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UST GOLDEN NOTES 2011

death or expulsion of one of the


partners
9. Surviving partner Remains after a
partnership has been dissolved by
deathofanypartner
338
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FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

10. Subpartner Is not a member of the


partnership; contracts with a partner
with reference to the latter's share in
thepartnership
11. Ostensible Takes active part and
known to the public as partner in the
business
12. Secret Takes active part in the
business but is not known to be a
partnerbyoutsideparties
13. SilentDoesnottakeanyactivepartin
thebusinessalthoughhemaybeknown
tobeapartner
14. Dormant Does not take active part in
the business and is not known or held
outasapartner

Q: What are the relations created by a contract


ofpartnership?

A:
1. PartnersPartners
2. PartnersPartnership
3. Partnership3
rd
persons with whom it
contracts
4. Partners3
rd
persons with whom
partnershipcontracts.

F.UNIVERSALVS.PARTICULAR;
GENERALVS.LIMITED

UNIVERSALPARTNERSHIP

Q: Distinguish the classes of universal


partnership.

A:
ALLPROFITS ALLPRESENTPROPERTY
Whatconstitutescommonproperty
Onlyusufructof
thepropertiesof
thepartners
becomecommon
property

Allpropertiesactually
belongingtothepartnersare
contributedtheybecome
commonproperty
(ownedbyallofthepartners
andthepartnership)
Astoprofitsascommonproperty
Allprofits
acquiredbythe
industryofthe
partnersbecome
commonproperty
(whetherornot
theywere
obtainedthrough
Astoprofitsfromothersources:
GR:Asidefromthecontributed
properties,theprofitsofsaid
propertybecomecommon
property

XPN:Profitsfromother
sourcesmaybecomecommon
theusufruct
contributed)

ifthereisastipulationtosuch
effect
Astopropertiessubsequently
acquired:
GR: Propertiessubsequently
acquiredbyinheritance,legacy
ordonation,cannotbeincluded
inthestipulation

XPN:Onlyfruitsthereofcanbe
includedinthestipulation(Art.
1779,NCC)

Q: If the Articles of Universal Partnership fail to


specify whether it is one of all present property
orofprofits,whatshallbethenatureofsuch?

A: Articles of Universal Partnership entered into


without specification of its nature only
constitutesauniversalpartnershipofprofits(Art.
1781, NCC), because it imposeslesser obligations
on the partners, since they preserve the
ownershipoftheirseparateproperty.

PARTICULARPARTNERSHIP

Q:Whatisparticularpartnership?

A: It is one which has for its object, determinate


things, their use and fruits, or a specific
undertaking or the exercise of a profession or a
vocation.(Art.1783,NCC)

Q:J,PandBformedalimitedpartnershipcalled
Suter Co., with P as the general partner and J
and B as limited partners. J and B contributed
P18,000and P20,000respectively.Later,Jand B
got married and P sold his share of the
partnership to the spouses which was recorded
in the SEC. Has the limited partnership been
dissolvedbyreasonofthemarriagebetweenthe
limitedpartners?

A: No. The partnership is not a universal but a


particular one. As provided by law, a universal
partnership requires either that the object of the
association must be all present property of the
partners as contributed by them to a common
fund,orallelsethatthepartnersmayacquireby
their industry or work. Here, the contributions
were fixed sums of money and neither one of
them were industrial partners. Thus, the firm is
not a partnership which the spouses are
forbiddentoenterinto.Thesubsequentmarriage
cannotoperatetodissolveitbecauseitisnotone
of the causes provided by law. The capital
contributions were owned separately by them
before their marriage and shall remain to be
separate under the Spanish Civil Code. Their

PARTNERSHIP

339
UNIVERSITYOFSANTOTOMAS
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VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
individual interest did not become common
property after their marriage. (Commissioner of
Internal Revenue v. Suter, G.R. No. L25532, Feb.
28,1969)

Q:Whendoesapartnerbindthepartnership?
A:
1. When he is expressly or impliedly
authorized
2. Whenheactsinbehalfandinthename
ofthepartnership

GENERALPARTNERSHIP

Q:Whatisgeneralpartnership?

A: One where all partners are general partners


who are liable even with respect to their
individual properties, after the assets of the
partnership have been exhausted (Paras, Civil
Code of the Philippines Annotated, Volume 5, p.
411,19696
th
ed)
Q:Whoisageneralpartner?

A:Onewhoseliabilitytothirdpersonsextendsto
his separate property; he may be either a
capitalist or an industrial partner. (De Leon,
CommentsandCasesonPartnership,Agency,and
Trust,p.77,2005ed)

Q:Whataretheobligationsofapartner?

A:
1. Obligationsamongthemselves
2. Obligationstothirdpersons

Q:Whatisthebasisforsuchobligations?

A: These obligations are based on trust and


confidence of the partners since partnership is
grounded on the fiduciary relationship of the
partnersandaswelltothirdpersons.

Q:Whatarethedistinctionsbetweenageneralandalimitedpartner/partnership?

A:
GENERAL LIMITED
ExtentofLiability
Personallyliableforpartnershipobligations Liabilityextendsonly tohiscapitalcontributions
RightinManagement
Whenmannerofmanagementisnotagreedupon,
allgeneralpartnershaveanequalrightinthe
managementofthebusiness
Noparticipationinmanagement
Contribution
Contributecash,propertyorindustry Contributecashorpropertyonly,notindustry
IfProperPartyto ProceedingsByorAgainstPartnership

Properpartytoproceedingsby/againstpartnership

Not proper party to proceedings by/against partnership,


unless:
1. Heisalsoageneralpartner;or
2. Where the object of the proceeding is to enforce a
limitedpartnersrightorliabilitytothepartnership
AssignmentofInterest
Interestisnotassignablewithoutconsentofother
partners
Interestisfreelyassignable
FirmName

Namemayappearinfirmname

GR: Namemustnot appearinfirmname

XPNs:
1. Itisalsothesurnameofageneralpartner;
2. Prior to the time when the limited partner became
such,thebusinesshadbeencarriedonunderaname
inwhichhissurnameappeared.
ProhibitiontoEngageinOtherBusiness
Prohibitedinengaginginbusiness Noprohibition againstengaginginbusiness
EffectofDeath,Insolvency,Retirement,Insanity
Retirement,death,insolvency,insanityofgeneral
partnerdissolvespartnership
Doesnothavesameeffect;rightsaretransferredtolegal
representative
Creation
Asarule,itmaybeconstitutedinanyform,by Createdbythemembersaftersubstantialcompliancein
UST GOLDEN NOTES 2011

contractorconductofthepartnership goodfaithoftherequirementssetforthbylaw
Composition/Membership
Composedonlyofgeneralpartners
Composedofoneormoregeneralpartnersandoneor
morelimitedpartners

340
CIVILLAWTEAM:
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ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

G.PARTNERSHIPBYESTOPPEL

Q:Whoisapartnerbyestoppel?

A:Onewho,bywordsorconductdoesanyofthe
following:
1. Directlyrepresentshimselftoanyoneas
apartnerinanexistingpartnershiporin
anonexistingpartnership
2. Indirectly represents himself by
consentingtoanotherrepresentinghim
as a partner in an existing partnership
orinanonexistingpartnership

Q: What are the elements before a partner can


beheldliableonthegroundofestoppel?

A:
1. Defendant represented himself as
partner or is represented by others as
such, and did not deny/refute such
representation.
2. Plaintiffreliedonsuchrepresentation.
3. Statementofdefendantisnotrefuted.

Q:Whataretheliabilitiesincaseofestoppel?

A:
WhenPartnershipisLiable
Ifallactualpartnersconsentedtothe
representation,thentheliabilityofthepersonwho
representedhimselftobeapartnerorwho
consentedtosuchrepresentationandtheactual
partnerisconsideredapartnershipliability
WhenLiabilityisPRORATA
When there is no existing partnership and all those
represented as partners consented to the
representation, then the liability of the person who
represented himself to be a partner and all who
madeandconsentedtosuchrepresentation,isjoint
orprorata
WhenLiabilityisSEPARATE
Whenthereisnoexistingpartnershipandnotallbut
only some of those represented as partners
consented to the representation, or none of the
partnership in an existing partnership consented to
such representation, then the liability will be
separate

H.PARTNERSHIPV.JOINTVENTURE

Q:Whatisajointventure?

A:Anassociationofpersonsorcompaniesjointly
undertaking some commercial enterprise;
generally,allcontributesassetsandsharerisks.It
requires a community of interest in the
performance of the subject matter, a right to
direct and govern the policy in connection
therewith, and a duty which may be altered by
agreementtosharebothinprofitsandlosses.

Partnership JointVenture
Transactionsenteredinto
Thedurationofa
partnershipgenerally
relatestoacontinuing
businessofvarious
transactionsofacertain
kind.

Limitedtotheperiodin
whichthegoodsare
soldortheprojectis
carriedonorasingle
transaction.
Nature
Permanent,partnersare
interestedincarryingon
togetherofageneraland
continuingbusinessofa
particularkind.

Note:Aparticular
partnershiphasalimited
andtemporaryoradhoc
nature,beingconfinedto
asingleundertaking.
Temporary,althoughit
maycontinuefora
numberofyears.
FirmNameandLiablities
Theremustbea
partnershiporfirmname
underwhichthe
partnershipshalloperate.
Thenamesofthe
partnersmayappearin
thefirmnameandthe
actofthepartnerswill
makethepartnership
liable.
Afirmnameisnot
necessary,thusthe
participatingpersons
cantransactbusiness
undertheirownname
andcanbeindividually
liabletherefore.
Corporationaspartner
Corporationcannotenter
intoapartnership
contract,thusitcannot
beapartnerbyreasonof
publicpolicy;otherwise
peopleotherthanits
officersmaybeableto
bindit(Albano,CivilLaw
Corporationscan
engageinajoint
venturewithothers
throughacontractof
agreementifthenature
oftheventureinline
withthebusinessofthe
corporationanditis

PARTNERSHIP

Reviewer,1998,p.570) authorizedinits
charter.
LegalPersonality
A partnership acquires
personality after
following the requisites
required by law. e.g. Art.
17711773,NCC

Note: SEC registration is


not required before a
partnershipacquireslegal
personality. (Art. 1768,
NCC)
Ajointventurehasno
legalpersonality.
341
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VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ

I.PROFESSIONALPARTNERSHIP

Q:Whatisaprofessionalpartnership?

A: It is a partnership formed by persons for the


sole purpose of exercising their common
profession, no part of the income of which is
derivedfromengaginginanytradeorbusiness.

Q: In a professional partnership, whois deemed


engagedinthepracticeofprofession?

A: It is the individual partners and not the


partnership. Thus, they are responsible for their
ownacts.

Q: What is prohibited in the formation of a


professionalpartnership?

A: Partnership between lawyers and members of


other profession or nonprofessional persons
should not be formed or permitted where any
part of the partnerships employment consists of
the practice of law. (Canons of Professional
Ethics)

Q: What are the characteristics of a partnership


forthepracticeoflaw?

A:
a. A duty of public service, of which the
emolumentisabyproduct
b. Arelationasanofficerofcourttothe
administrationofjustice
c. A relation to clients in the highest
fiduciarydegree
d. A relationship to colleagues at the bar
characterized by candor, fairness, and
unwillingness to resort to current
business methods of advertising and
encroachment on their practice, or
dealingwiththeirclients.(IntheMatter
ofPetitionforAuthoritytoContinueUse
of Firm Name Sycip, Salazar, etc. /
Ozeata Romulo, etc., 92 SCRA 1
[1979], citing H.S. Drinker, Legal Ethics
[1953],pp45.)

Q: What is prohibited in the firm name of a


partnershipforthepracticeoflaw?

A:Intheselectionanduseoffirmname,nofalse,
misleading, assumed, or trade names should be
used.(CanonsofProfessionalEthics)

J.MANAGEMENTOFTHEPARTNERSHIP

Q: What are the modes of appointment of a


manager?

A:
Appointmentthrough
theArticlesof
Partnership
AppointmentOther
ThanintheArticles
Powerisirrevocable
withoutjustorlawful
cause

Note:Voterequiredfor
removalofmanager
1. For just cause
Vote of the
controlling
partners
(controlling
financialinterest)
2. Without cause or
for unjust cause
Unanimousvote
Powertoactisrevocable
anytime,withorwithout
cause(shouldbedoneby
thecontrollinginterest)

ExtentofPower
1. If he acts in good
faith,hemaydoall
acts of
administration
(despite
opposition of his
partners)
2. If he acts in bad
faith,hecannot
Aslongasheisa
manager,hecanperform
allactsofadministration
(ifothersoppose,hecan
beremoved)

UST GOLDEN NOTES 2011

342
CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

Q:Whatistherulewheretherearetwoormore
managers?
A:
Withoutspecificationoftheirrespectiveduties
andwithoutstipulationrequiringunanimityof
action
GR: Each may separately execute all acts of
administration (unlimited power to
administer)

XPN:Ifanyofthemanagersopposes,decision
ofthemajorityprevails

Note:IncaseoftieDecisionofthecontrolling
interest(whoarealsomanagers)shallprevail

Nature
GR:Unanimousconsentofallthemanaging
partnersshallbenecessaryforthevalidityofthe
actsandabsenceorinabilityofanymanaging
partnercannotbealleged.

XPN:Wherethereisanimminentdangerofgrave
orirreparableinjurytothepartnership.

Q: What is the rule when the manner of


managementhasnotbeenagreedupon?

A:
1. All partners shall be considered
managersandagents
2. Unanimous consent is required for
alterationofimmovableproperty

Q: Azucena and Pedro acquired a parcel of land


andabuilding.AzucenaobtainedaloanfromTai
Tong Co., secured by a mortgage which was
executed over the land and building. Arsenio,
representative of Tai Tong, insured it with
Travellers Multi Indemnity Corporation. The
buildingandthecontentsthereofwererazedby
fire. Travellers failed to pay the insurance.
Hence, Azucena and Pedro filed a case against
Travellers wherein Tai Tong intervened claiming
entitlement to the proceeds from Travellers.
Whoisentitledtotheproceedsofthepolicy?

A:TaiToingisentitledtotheinsuranceproceeds.
Arseniocontractedtheinsurancepolicyonbehalf
of Tai Tong. As the managing partner of the
partnership, he may execute all acts of
administration including the right to sue debtors
of the partnership in case of their failure to pay
their obligations when it became due and
demandable. Or at the very least, Arsenio is an
agent of the partnership. Being an agent, it is
understoodthatheactedforandinbehalfofthe
firm. (Tai Tong Chuache & Co. v. Insurance
Commissioner,G.R.No.L55397,Feb.29,1988)

Note:Ifrefusalofpartnerismanifestlyprejudicialto
theinterestofpartnership,courtsinterventionmay
besought.

Q: What are the remedies available to the


creditorsofapartner?

A:
1. Separate or individual creditors should
first secure a judgment on their credit;
and
2. Applytothepropercourtforacharging
order subjecting the interest of the
debtorpartner in the partnership for
the payment of the unsatisfied amount
of the judgment debt with interest
thereon.


PARTNERSHIP

Q:Whataretheeffectsoftheactsofpartners?

A:
ACTSOFAPARTNER EFFECT

Actsforapparentlycarryingonintheusualwaythe
businessofthepartnership
Withbindingeffectexcept:
1. Whenthepartnersoactinghasinfactnoauthorityto
actforthepartnershipintheparticularmatter,and
2. Thepersonwithwhomheisdealinghasknowledgeof
thefactthathehasnosuchauthority
Actsnotintheordinarycourseofbusiness
Donotbind partnershipunlessauthorizedbyother
partners(par.2,Art.1818,NCC)
Actsofstrictdominionorownership:
1. Assigning partnership property in trust for
creditors;
2. Disposingofgoodwillofbusiness;
3. Doing an act which would make it impossible to
carryontheordinarybusinessofpartnership;
4. Confessingajudgment;
5. Entering into a compromise concerning a
partnershipclaimorliability;
6. Submitting partnership claim or liability to
arbitration;
7. Renouncingclaimofpartnership
GR:Oneormorebutlessthanallthepartnershaveno
authority

XPNs:
1. authorizedbytheotherpartners;or

2. p
3. artners have abandoned the business (par. 2, Art.
1818,NCC)
Actsincontraventionofarestrictiononauthority
Partnershipisnotliable to3
rd
personshavingactualor
presumptiveknowledgeoftherestriction

Q:Whatistheeffectofconveyanceofarealproperty?

A:
343
TYPEOFCONVEYANCE EFFECT
Titleinthepartnershipsname;
Conveyanceinpartnershipname
Conveyancepassestitlebutpartnershipcanrecoverunless:

1.
a. Conveyancewasdoneintheusualwayofbusiness,and
b. The partner so acting has the authority to act for the
partnership;or
2. The property which has been conveyed by the grantee or a
person claiming through such grantee to a holder for value
without knowledge that the partner, in making the
conveyance,hasexceededhisauthority
Titleinthepartnershipsname;
Conveyanceinpartner'sname
Conveyancedoesnotpasstitlebutonlyequitableinterest,
provided:
1. Conveyancewasdoneintheusualwayofbusiness,or
2. The partner so acting has the authority to act for the
partnership
Titleinthenameof1ormorepartners,and
therecorddoesnotdisclosetherightofthe
partnership;Conveyanceinnameof
partner/sinwhosenametitlestands
Conveyancepassestitlebutthepartnershipmayrecoversuch
propertyifthepartnersactdoesnotbindthepartnership:
1. The partner so acting has no authority to act for the
partnership,and
2. The person with whom he is dealing has knowledge of the
fact unless the purchaser of his assignee, is a holder for
value,withoutknowledge
Titleinnameof1ormoreorallpartnersor
3
rd
personintrustforpartnership;
Conveyanceexecutedinpartnershipname
orinnameofpartners
Conveyancewillonlypassequitableinterest,provided:
1. Theactisonewithintheauthorityofthepartner,and
2. Conveyancewasdoneintheusualwayofthebusiness
Titleinthenamesofallthepartners;
Conveyanceexecutedbyallthepartners
Conveyancewillpassalltherightsinsuchproperty

UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
UST GOLDEN NOTES 2011

344
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ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

II.RIGHTSANDOBLIGATIONSOFPARTNERSHIP

Q:Whataretheresponsibilitiesofapartnership
topartners?

A:
1. Refund the amounts disbursed by
partnerinbehalfofthepartnershipplus
corresponding interest from the time
the expenses are made (e.g. loans and
advances made by a partner to the
partnership aside from capital
contribution)
2. Answer for obligations a partner may
have contracted in good faith in the
interestofthepartnershipbusiness
3. Answer for risks in consequence of its
management(Art.1796)

III.RIGHTSANDOBLIGATIONSOFPARTNERS
AMONGTHEMSELVES

Q: What are the obligations of partners among


themselves?

A:
1. Contributionofproperty(Art.1786)
2. Contribution of money and money
convertedtopersonaluse(Art.1788)
3. Prohibition in engaging in business for
himself(Art.1789)
4. Contributeadditionalcapital(Art.1791)
5. Managing partner who collects debt
(Art.1792)
6. Partner who receives share of
partnershipcredit(Art.1793)
7. Damagestopartnership(Art.1794)
8. Renderinformation(Art.1806)
9. Accountableasfiduciary(Art.1807)

CONTRIBUTIONOFPROPERTY

Q: What are the obligations of partners with


respecttocontributionofproperty?

A:ToCAFPI
1. Contribute at the beginning of the
partnership, or at the stipulated time,
the money, property or industry which
hemayhavepromisedtocontribute

2. Answer for eviction in case the


partnership is deprived of the
determinatepropertycontributed

3. AnswertothepartnershipfortheFruits
of the property the contribution of
which he delayed, from the date they
shouldhavebeencontributeduptothe
timeofactualdelivery

4. Preserve said property with the


diligence of a good father of a family,
pendingdeliverytothepartnership

5. Indemnify the partnership for any


damagecausedtoitbytheretentionof
the same or by the delay in its
contribution

Q: Who bears the risk of loss of things


contributed?

A:
KINDOFPROPERTY/THING
WHOBEARSTHE
RISK?
Specificanddeterminatethings
whicharenotfungiblewhere
onlytheuseiscontributed
partners
Specificanddeterminatethings
theownershipofwhichis
transferredtothepartnership
partnership
Fungiblethings(Consumable)
Thingscontributedtobesold
Thingsbroughtandappraisedin
theinventory

Q: What is the effect if a partner fails to


contribute the property which he promised to
delivertothepartnership?

A:
1. Partners become ipso jure a debtor of
the partnership even in the absence of
anydemand(Art.1786,NCC)
2. Remedy of the other partner is not
rescissionbutspecificperformancewith
damagesfromdefaultingpartner

CONTRIBUTIONOFMONEYANDMONEY
CONVERTEDTOPERSONALUSE

Q:Whataretherulesregardingcontributionof
moneytothepartnership?

A:CRIP
1. To Contribute on the date fixed the
amount the partner has undertaken to
contributetothepartnership
2. To Reimburse any amount the partner
may have taken from the partnership
coffersandconvertedtohisownuse
3. To Indemnify the partnership for the
damages caused to it by delay in the

PARTNERSHIP

contribution or conversion of any sum
forthepartnerspersonalbenefits
4. To Pay for the agreed or legal interest,
if the partner fails to pay his
contributionontimeorincasehetakes
anyamountfromthecommonfundand
convertsittohisownuse

CONTRIBUTEADDITIONALCAPITAL

Q:Whataretherulesregardingobligationsto
contributetopartnershipcapital?

A:
1. Partners must contribute equal shares
to the capital of the partnership unless
thereisstipulationtocontrary
2. Capitalist partners must contribute
additional capital in case of imminent
loss to the business of the partnership
when there is no stipulation to the
contrary; Refusal to do so shall create
anobligationontherefusingpartnerto
sellhisinteresttotheotherpartners

Q: What are the requisites before capitalist


partners are compelled to contribute additional
capital?

A:
1. Imminent loss of the business of the
partnership
2. Majorityofthecapitalistpartnersareof
the opinion that an additional
contribution to the common fund
wouldsavethebusiness
3. Capitalistpartnerrefusesdeliberatelyto
contribute (not due to financial
inability)
4. Thereisnoagreementtothecontrary
345
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MANAGINGPARTNERWHOCOLLECTSDEBT

Q: What are the obligations of managing


partners who collect his personal receivable
fromapersonwhoalsoowesthepartnership?

A:
1. Apply sum collected to 2 credits in
proportiontotheiramounts
2. If he received it for the account of
partnership, the whole sum shall be
appliedtopartnershipcredit

Note:Requisites:
1. At least 2 debts, one where the collecting
partner is creditor and the other, where
thepartnershipisthecreditor
2. Bothdebtsaredemandable
3. Partner who collects is authorized to
manage and actually manages the
partnership

PARTNERWHORECEIVESSHAREOF
PARTNERSHIPCREDIT

Q:Whatistheobligationofapartnerwho
receivesshareofpartnershipcredit?

A:Tobringtothepartnershipcapitalwhathehas
received even though he may have given receipt
forhisshareonly.

Note:Requisites:
1. Apartnerhasreceivedinwholeorinpart,
hisshareofthepartnershipcredit
2. Other partners have not collected their
shares
3. Partnershipdebtorhasbecomeinsolvent

Q:Mayapersonwhohasnotdirectlytransacted
in behalf of an unincorporated association be
held liable for a contract entered into by such
association?

A:Yes.Theliabilityforacontractenteredintoon
behalf of an unincorporated association or
ostensible corporation may lie in a person who
may not have directly transacted on its behalf,
butreapedbenefitsfromthatcontract.(LimTong
Lim v. Philippine Fishing Gear Industries Inc., G.R.
No.136448,Nov.3,1999)

PROHIBITIONINENGAGINGINBUSINESS

Q: What are the rules regarding the prohibition


toengageinanotherbusiness?

A:
INDUSTRIALPARTNER CAPITALISTPARTNER
Prohibition
Cannotengagein
businessforhimself
unlessthepartnership
expresslypermitshimto
doso

Cannotengagein
business(withsame
kindofbusinesswith
thepartnership)forhis
ownaccount,unless
thereisastipulationto
thecontrary
Remedy
Capitalistpartnersmay:
1. Exclude him from
thefirm
2. Avail themselves of
the benefits which
he may have
obtained
3. Damages, in either
case (Art. 1789,
NCC)
Capitalist partner, who
violatedshall:
1. Bring to the
common fund any
profits accruing to
him from said
transaction;and
2. Bears all losses
(Art.1808,NCC)

UST GOLDEN NOTES 2011

Q:JoeandRudyformedapartnershiptooperate
a car repair shop in Quezon City. Joe provided
thecapitalwhileRudycontributedhislaborand
industry. On one side of their shop, Joe opened
and operated a coffee shop, while on the other
side, Rudy put up a car accessories store. May
theyengageinsuchseparatebusinesses?Why?

A: Joe, the capitalist partner, may engage in the


restaurant business because it is not the same
kindofbusinessthepartnershipisengagedin.On
the other hand, Rudy may not engage in any
other business unless their partnership expressly
permits him to do so because as an industrial
partner he has to devote his full time to the
business of the partnership (Art. 1789, NCC).
(2001BarQuestion)

DAMAGESTOPARTNERSHIP

Q:Whatistherulewithregardtotheobligation
of a partner as to damages suffered by the
partnershipthroughhisfault?

A:
GR: Every partner is responsible to the
partnership for damages suffered by it
throughhisownfault.Thesedamagescannot
be offset by the profits or benefits which he
may have earned for the partnership by his
industry.

XPN:Ifunusualprofitsarerealizedthrough
extraordinaryeffortsoftheguiltypartner,the
courtsmayequitablymitigateorlessenhis
liabilityfordamages.(Art.1794,NCC)

DUTYTORENDERINFORMATION

Q:Whatisthedutyofthepartnerswithrespect
toinformationaffectingthepartnership?

A: They shall render on demand true and full


informationofallthingsaffectingthepartnership
to:
1. thepartner;or
2. legal representative of any deceased or
legally disabled partner. (Art. 1806,
NCC)

ACCOUNTABLEASFIDUCIARY

Q: How are partners accountable to each other


asfiduciary?
346

A:Everypartnermustaccounttothepartnership
for any benefit, and hold as trustee for it any
profitsderivedbyhimwithouttheconsentofthe
other partners from any transaction connected
withtheformation,conduct,orliquidationofthe
partnership or from any use by him of its
property.(Art.1807,NCC)

RIGHTSOFGENERALPARTNERS

Q:Whatarethepropertyrightsofapartner?
A:SIM
1. RightinSpecificpartnershipproperty
2. Interestinthepartnership(shareinthe
profitsandsurplus)
3. RighttoparticipateintheManagement

Q: What is the nature of a partner's right in


specificpartnershipproperty?

A:
1. Equal right to possession for
partnershippurposes
2. Right is not assignable, except in
connectionwithassignmentofrightsof
allpartnersinthesameproperty
3. Right is limited to his share of what
remains after partnership debts have
beenpaid
4. Right is not subject to attachment or
executionexceptonaclaimagainstthe
partnership
5. Rightisnotsubjecttolegalsupport

Q: What are the effects of assignment of


partnerswholeinterestinthepartnership?

A:
1. Rightswithheldfromtheassignee:
Such assignment does not grant the
assigneetherightto:
a. Tointerfereinthemanagement
b. To require any information or
account
c. Toinspectpartnershipbooks

2. Rightsofassigneeonpartnersinterest:
a. To receive in accordance with his
contracttheprofitsaccruingtothe
assigningpartner
b. To avail himself of the usual
remedies provided by law in the
eventoffraudinthemanagement
c. Toreceivetheassignorsinterestin
caseofdissolution
d. To require an account of
partnershipaffairs,butonlyincase
the partnership is dissolved, and
suchaccountshallcovertheperiod
from the date only of the last
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PARTNERSHIP

account agreed to by all the
partners

Q:Whataretheeffectsofconveyanceofa
partnerofhisinterestinthepartnership?

A:
1. Conveyance of his whole interest
partnership may either remain or be
dissolved
2. Assigneedoesnotnecessarilybecomea
partner;hecannot:
a. interfere in the management or
administration;or
b. demand information, accounting
and inspection of the partnership
books.

Note:Buttheassigneehasthefollowingrights:
1. receive in accordance with his contract
the profits which the assigning partner
wouldotherwisebeentitled
2. avail himself of the usual remedies
provided by law in event of fraud in
management
3. receive assignors interest in case of
dissolution
4. require and account of partnership affairs
but only in case the partnership is
dissolved, and such account shall cover
the period from the date only of the last
accountagreedtobyalltheparties

CRIMINALLIABILITYFORMISAPPROPRIATION:
ESTAFA

Q: Rosa received from Jois money, with the


express obligation to act as Jois agent in
purchasing local cigarettes, to resell them to
several stores, and to give Jois the commission
corresponding to the profits received. However,
Rosa misappropriated and converted the said
amount due to Jois to her personal use and
benefit. Jois filed a case of estafa against Rosa.
Can Rosa deny liability on the ground that a
partnershipwasformedbetweenherandRosa?

A: No. Even assuming that a contract of


partnership was indeed entered into by and
betweentheparties,whenapartnerreceivesany
moneyorpropertyforaspecificpurpose(suchas
that obtaining in the instant case) and he later
misappropriates the same, is guilty of estafa.
(Liwanagv.CA,G.R.No.114398,Oct.24,1997)

347

IV.OBLIGATIONSOFPARTNERSHIP/PARTNERS
TOTHIRDPERSONS

Q: What are the obligations of partners with


regardto3
rd
persons?

A:
1. Every partnership shall operateunder a
firm name. Persons who include their
names in the partnership name even if
they are not members shall be liable as
apartner
2. All partners shall be liable for
contractual obligations of the
partnershipwiththeirproperty,afterall
partnership assets have been
exhausted:
a. Prorata
b. Subsidiary
3. Admission or representation made by
any partner concerning partnership
affairs within the scope of his authority
isevidenceagainstthepartnership
4. Noticetopartnerofanymatterrelating
topartnershipaffairsoperatesasnotice
topartnershipexceptincaseoffraud:
a. Knowledgeofpartneractinginthe
particular matter acquired while a
partner
b. Knowledgeofthepartneractingin
the particular matter then present
tohismind
c. Knowledge of any other partner
who reasonably could and should
have communicated it to the
actingpartner
5. Partners and the partnership are
solidarily liable to 3
rd
persons for the
partner'stortorbreachoftrust
6. Liability of incoming partner is limited
to:
a. His share in the partnership
propertyforexistingobligations
b. His separate property for
subsequentobligations
7. Creditorsofpartnershiparepreferredin
partnership property & may attach
partner'sshareinpartnershipassets

Note: On solidary liability. Art. 1816 should be


construed together with Art. 1824 (in connection
with Arts. 1822 and 1823). While the liability of the
partners is merely joint in transactions entered into
by the partnership, a third person who transacted
with said partnership may hold the partners
solidarilyliableforthewholeobligationifthecaseof
the third person falls under Articles 1822 and 1823.
(Munasquev.CA,G.R.No.L39780,Nov.11,1985)

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348
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V.DISSOLUTION

Q: Distinguish dissolution, winding up and


termination.

Dissolution Windingup Termination


Achangeinthe
relationofthe
partners
causedbyany
partnerceasing
tobe
associatedin
carryingonthe
business.
Settlingthe
partnership
businessor
affairsafter
dissolution
Pointintime
whenall
partnership
affairsare
woundupor
completed;the
endofthe
partnershiplife

Q:Whatarethecausesofdissolution?

A:
1. Withoutviolatingtheagreement:
a. Terminationofthedefinitetermor
specificundertaking
b. Expresswillofanypartneringood
faith, when there is no definite
termandnospecifiedundertaking
c. Express will of all partners (except
those who have assigned their
interests or suffered them to be
charged for their separate debts)
either before or after the
termination of any specified term
orparticularundertaking
d. Expulsion of any partner in good
faithofamember
2. Violatingtheagreement
3. Unlawfulnessofthebusiness
4. Loss
a. Specific thing promised as
contribution is lost or perished
beforedelivery
b. Lossofaspecificthingcontributed
before or after delivery, if only the
useofsuchiscontributed

Note: The partnership shall not be


dissolved by the loss of the thing when it
occurs after the partnership has acquired
theownershipthereof.

5. Deathofanyofthepartners
6. Insolvency of any partner or of the
partnership
7. Civilinterdictionofanypartner
8. BydecreeofcourtunderArt.1831,NCC
a. apartnerhasbeendeclaredinsane
orofunsoundmind
b. a partner becomes in any other
way incapable of performing his
partofthepartnershipcontract
c. a partner has been guilty of such
conduct as tends to affect
prejudicially the carrying on of the
business
d. a partner willfully or persistently
commits a breach of the
partnershipagreement
e. thebusinessofthepartnershipcan
onlybecarriedonataloss
f. other circumstances render a
dissolutionequitable

Q:Whataretheeffectsofdissolution?

A:
1. Partnershipisnotterminated
2. Partnership continues for a limited
purpose
3. Transaction of new business is
prohibited (De Leon, Comments and
Cases on Partnership, Agency, and
Trust,p.229,2005ed)

Note: The dissolution of a partnership must not be


understood in the absolute and strict sense so that
at the termination of the object for which it was
createdthepartnershipisextinguished,pendingthe
winding up of some incidents and obligations of the
partnership,butinsuchcase,thepartnershipwillbe
reputedasexistinguntilthejuridicalrelationsarising
out of the contract are dissolved. (Testate of Motta
v.Serra,G.R.No.L22825,Feb.14,1925)

Dissolution does not automatically result in the


termination of the legal personality of the
partnership,northerelationsofthepartnersamong
themselves who remain as copartners until the
partnership is terminated. (De Leon, Comments and
CasesonPartnership,Agency,andTrust,p.29,2005
ed)

Q: What is the effect of dissolution on the


authorityofapartner?

A:
GR: The partnership ceases to be a going
concern

XPN:Thepartnerspowerofrepresentationis
confinedonlytoactsincidenttowindingupor
completing transactions begun but not then
finished.(Art.1832,NCC)

Note: Subject to the qualifications set forth in


Articles 1833 and 1834 in relation to Article
1832,NCC:
1. In so far as the partners themselves are
concerned The authority of any partner
tobindthepartnershipbyanewcontract
is immediately terminated when the

PARTNERSHIP

dissolution is not by the Act, Insolvency,
orDeathofapartner(AID).
2. When the dissolution is by the act,
insolvency, or death, the termination of
authority depends upon whether or not
the partner had knowledge or notice of
dissolution(Art.1833,NCC).

Q: The articles of copartnership provide that in


case of death of one partner, the partnership
shall not be dissolved but shall be continued by
thedeceasedpartnersheirs.WhenH,apartner,
died, his wife, W, took over the management of
some of the real properties with permission of
the surviving partner, X, but her name was not
included in the partnership name. She
eventually soldthese realproperties after a few
years. X now claims that W did not have the
authoritytomanageandsellthosepropertiesas
shewasnotapartner.Isthesalevalid?

A:Yes.Thewidowwasnotamereagent,because
she had become a partner upon her husband's
death,asexpresslyprovidedbythearticlesofco
partnership, and by authorizing the widow to
managepartnershippropertyXrecognizedheras
a general partner with authority to administer
andalienatepartnershipproperty.Itisimmaterial
thatW'snamewasnotincludedinthefirmname,
since no conversion of status is involved, and the
articlesof copartnership expressly contemplated
the admission of the partner's heirs into the
partnership.(Goquiolayv.Sycip,G.R.No.L11840,
Dec.16,1963)

Q: What is the liability of a partner where the


dissolution is caused by the act, death or
insolvencyofapartner?

A:
GR: Each partner is liable to his copartners
for his share, of any liability created by any
partner for the partnership, as if the
partnershiphadnotbeendissolved.

XPNs:Partnersshallnotbeliablewhen:
1. the dissolution, being by act of any
partner, the partner acting for the
partnership had knowledge of the
dissolution;or
2. the dissolution, being by the death or
insolvency of a partner, the partner
acting for the partnership had
knowledge or notice of the death or
insolvency(Art.1833,NCC)
349

Q: After the dissolution of a partnership, can a


partnerstillbindthepartnership?

A:
GR: Yes. A partner continues to bind
partnership even after dissolution in the
followingcases:
1. Transactions to wind up partnership
affairs/complete transactions
unfinishedatdissolution;
2. Transactions which would bind
partnership if not dissolved dissolution
hadnottakenplace,providedtheother
party/obligee:
a.
i. Had extended credit to partnership
priortodissolution;and
ii. Had no knowledge/notice of
dissolution;or
b.
i. Didnotextendcredittopartnership;
ii. Had known partnership prior to
dissolution;and
iii. Had no knowledge/notice of
dissolution/fact of dissolution not
advertisedinanewspaperofgeneral
circulation in the place where
partnershipisregularlycarriedon.

XPNs: Partner cannot bind the partnership


anymoreafterdissolutionwheredissolutionis
duetounlawfulnesstocarryonbusiness

XPNtoXPN:Windingupofpartnershipaffairs
1. Partnerhasbecomeinsolvent
2. Actisnotappropriateforwindingupor
forcompletingunfinishedtransactions
3. Completely new transactions which
would bind the partnership if
dissolution had not taken place with
thirdpersonsinbadfaith.
4. Partner is unauthorized to wind up
partnership affairs, except by
transactionwithonewho:
a.
i. Had extended credit to partnership
priortodissolution;
ii. Had no knowledge or notice of
dissolution;or
b.
i. Did not extend credit to partnership
priortodissolution;
ii. Had known partnership prior to
dissolution;and
iii. Had no knowledge/notice of
dissolution/fact of dissolution not
advertisedinanewspaperofgeneral
circulation in the place where
partnershipisregularlycarriedon.

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Q: Does the dissolution of a partnership


dischargeexistingliabilityofapartner?

A:
GR:No.

XPN: Said liability is discharged when there is


anagreementbetween:
1. Partnerhimself;
2. Person/scontinuingthebusiness;and
3. Partnershipcreditors

Q: What is the order of priority in the


distribution of assets during the dissolution of a
limitedpartnership?

A: In setting accounts after dissolution, the


liabilities of the partnership shall be entitled to
paymentinthefollowingorder:
1. Those to creditors, in the order of
priority as provided by law, except
those to limited partners on account of
their contributions, and to general
partners
2. Those to limited partners in respect to
their share of the profits and other
compensation by way of income on
theircontributions
3. Those to limited partners in respect to
thecapitaloftheircontributions
4. Those to general partners other than
forcapitalandprofits
5. Those to general partners in respect to
profits
6. Those to general partners in respect to
capital(Art.1863,NCC)

Note: Subject to any statement in the certificate or


to subsequent agreement, limited partners share in
the partnership assets in respect to their claims for
capital, and in respect to their claims for profits or
for compensation by way of income on their
contribution respectively, in proportion to the
respectiveamountsofsuchclaims.

WINDINGUP

Q: What takes place during the winding up of


thepartnership?

A: It is during this time after dissolution that


partnership business or affairs are being settled.
(De Leon, Comments and Cases on Partnership,
Agency,andTrust,p.229,2005ed)

350
Note:Examplesofwindingup:
1. Payingpreviousobligations
2. Collectingassetspreviouslydemandable
Engaging in new business necessary for winding up
such as contracting with a demolition company for
the demolition of the garage used in a used car
partnership (Paras, Civil Code of the Philippines
Annotated,Volume5,p.485,19696
th
ed)

Q:Whoarethepersonsauthorizedtowindup?

A:
1. Partnersdesignatedbytheagreement
2. Intheabsenceofsuch,allpartnerswho
have not wrongfully dissolved the
partnership
3. Legal representative of last surviving
partnerwhoisnotinsolvent

Q:Whatarepartnershipassets?

A:
1. Partnershipproperty
2. Contributions of the partnersnecessary
for the payment of all liabilities [Art.
1839(2),NCC]

Q:Whatistheorderofpaymentinwindingup?

A:
1. Those owing to creditors other than
partners
2. Those owing to partners other than for
capitalorprofits
3. Those owing to partners in respect of
capital
4. Those owing to partners in respect to
profits[Art.1839(2),NCC]

Q:Whatisthedoctrineofmarshallingofassets?

A:
1. Partnership creditors have preference
inpartnershipassets
2. Separate or individual creditors have
preference in separate or individual
properties
3. Anything left from either goes to the
other.

Q: What are the rights of a partner where


dissolution is not in contravention of the
agreement?

A: Unless otherwise agreed, the rights of each


partnerareasfollows:
1. To have the partnership property
applied to discharge the liabilities of
partnership;and
2. To have the surplus, if any, applied, to
pay in cash the net amount owing to
therespectivepartners.
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PARTNERSHIP

Q: What are the rights of a partner where
dissolution is in contravention of the
agreement?

A: The rights of a partner vary depending upon


whetherheistheinnocentorguiltypartner.

1. Rights of partner who has not caused


thedissolutionwrongfully:
a. To have partnership property
applied for the payment of its
liabilitiesandtoreceivein cash his
shareofthesurplus
b. Tobeindemnifiedforthedamages
caused by the partner guilty of
wrongfuldissolution
c. To continue the business in the
samenameduringtheagreedterm
of the partnership, by themselves
orjointlywithothers
d. To possess partnership property
shouldtheydecidetocontinuethe
business

2. Rights of partner who has wrongfully


causedthedissolution:
a. If the business is not continued by
the other partners, to have the
partnership property applied to
discharge its liabilities and to
receive in cash his share of the
surpluslessdamagescausedbyhis
wrongfuldissolution
b. Ifthebusinessiscontinued:
i. To have the value of his
interest in the partnership at
the time of the dissolution,
less any damage caused by
the dissolution to his co
partners,ascertainedandpaid
in cash, or secured by bond
approvedbythecourt;and
ii. To be released from all
existing and future liabilities
ofthepartnership

Q: What are the rights of injured partner where


partnershipcontractisrescinded?

A:
1. Right of a lien on, or retention of, the
surplus of partnership property after
satisfying partnership liabilities for any
sum of money paid or contributed by
him;
351
2. Right of subrogation in place of
partnership creditors after payment of
partnershipliabilities;and
3. Right of indemnification by the guilty
partner against all debts and liabilities
ofthepartnership.

Q: How are the accounts settled between


partners?

A:
1. Assetsofthepartnershipinclude:
a. Partnership property (including
goodwill)
b. Contributionsofthepartners
2. Orderofapplicationoftheassets:
a. First, those owing to partnership
creditors
b. Second, those owing to partners
other than for capital and profits
suchasloansgivenbythepartners
oradvancesforbusinessexpenses
c. Third,thoseowingforthereturnof
the capital contributed by the
partners
d. Fourth, the share of the profits, if
any,duetoeachpartner

Q: A partnership was formed with Magdusa as


the manager. During the existence of the
partnership,twopartnersexpressedtheirdesire
towithdrawfromthefirm.Magdusadetermined
the value of the partners share which were
embodied in the document drawn in the
handwriting of Magdusa but was not signed by
all of the partners. Later, the withdrawing
partners demanded for payment but were
refused. Considering that not all partners
intervenedinthedistributionofallorpartofthe
partnershipassets,shouldtheactionprosper?

A: No. A partners share cannot be returned


without first dissolving and liquidating the
partnership, for the return is dependent on the
discharge of creditors, whose claims enjoy
preference over those of the partner, and it is
selfevident that all members of the partnership
are interested in its assets and business, and are
entitled to be heard in the matter of the firms
liquidation and distribution of its property. The
liquidation prepared by Magdusa not signed by
the other partners is not binding on them.
(Magdusa v. Albaran, G.R. No. L17526, June 30,
1962)

Q:Whatispartnerslien?

A: The right of every partner to have the


partnership property applied, to discharge
partnership liabilities and surplus assets, if any,
distributed in cash to the respective partners,

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after deducting what may be due to the


partnershipfromthemaspartners.

Q:Canapartnerdemandforhisshareduringthe
existenceofapartnership?

A: No. A share in a partnership can be returned


only after the completion of the latter's
dissolution, liquidation and winding up of the
business.

Since the capital was contributed to the


partnership, not to partners, it is the partnership
that must refund the equity of the retiring
partners.Sinceitisthepartnership,asaseparate
anddistinctentitythatmustrefundthesharesof
the partners, the amount to be refunded is
necessarily limited to its total resources. In other
words, it can only pay out what it has in its
coffers,whichconsistsofallitsassets.(Villarealv.
Ramirez,G.R.No.144214,July14,2003)

Q:Whataretheeffectswhenthebusinessofa
dissolvedpartnershipiscontinued?

A:
1. Creditors of old partnership are also
creditors of the new partnership who
continues the business of the old one
without liquidation of the partnership
affairs.
2. Creditors have an equitable lien on the
consideration paid to the
retiring/deceased partner by the
purchaser when retiring/deceased
partner sold his interest without final
settlementwithcreditors.
3. Rights of retiring/estate of deceased
partner:
a. To have the value of his interest
ascertained as of the date of
dissolution;and
b. To receive as ordinary creditor the
value of his share in the dissolved
partnershipwithinterestorprofits
attributable to use of his right, at
hisoption.

Note: The right to demand on accounting of the


value of his interest accrues to any partner or his
legal representative after dissolution in the absence
ofanagreementtothecontrary.

352
Prescription begins to run only upon the dissolution
of the partnership, when the final accounting is
done.

Q:Whoarethepersonsrequiredtorenderan
account?

A:
1. Windinguppartner;
2. Survivingpartner;and
3. Person or partnership continuing the
business

Q: Emnace and Tabanao decided to dissolve


their partnership in 1986. Emnace failed to
submit the statement of assets and liabilities of
the partnership, and to render an accounting of
the partnership's finances. Tabanaos heirs filed
against Emnace an action for accounting, etc.
Emnace counters, contending that prescription
hassetin.Decide.

A: Prescription has not yet set in. Prescription of


the said right starts to run only upon the
dissolution of the partnership when the final
accounting is done. Contrary to Emnaces
protestations,prescriptionhadnotevenbegunto
runintheabsenceofafinalaccounting.Theright
to demand an accounting accrues at the date of
dissolution in the absence of any agreement to
the contrary. When a final accounting is made, it
is only then that prescription begins to run.
(Emnacev.CA,G.R.No.126334,Nov.23,2001)

Q: Pauline, Patricia and Priscilla formed a


businesspartnershipforthepurposeofengaging
in neon advertising for a term of five (5) years.
Pauline subsequently assigned to Philip her
interest in the partnership. When Patricia and
Priscillalearnedoftheassignment,theydecided
todissolvethepartnershipbeforetheexpiration
ofitstermastheyhadanunproductivebusiness
relationshipwithPhilipinthepast.Ontheother
hand, unaware of the move of Patricia and
Priscillabutsensingtheirnegativereactiontohis
acquisition of Paulines interest, Philip
simultaneously petitioned for the dissolution of
thepartnership.
Is the dissolution done by Patricia and Priscilla
without the consent of Pauline or Philip valid?
Explain.

A: Under Art 1830(1)(c), NCC, the dissolution by


Patricia and Priscilla is valid and did not violate
the contract of partnership even though Pauline
andPhilipdidnotconsentthereto.Theconsentof
Pauline is not necessary because she had already
assigned her interest to Philip. The consent of
Philip is also not necessary because the
assignment to him of Paulines interest did not
makehimapartner,underArt.1813,NCC.

CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

PARTNERSHIP

Does Philip have any right to petition for the
dissolution of the partnership before the
expirationofitsspecifiedterm?Explain.

A: No, Philip has no right to petition for


dissolution because he does not have the
standing of a partner. (Art. 1813, NCC) (1995 Bar
Question)

353
UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
VI.LIMITEDPARTNERSHIP

A.DEFINITION

Q:Whatislimitedpartnership?

A:Oneformedbytwoormorepersonshavingas
members one or more general partners and one
or more limited partners, the latter not being
personallyliableforpartnershipdebts(Art.1843)

Q:Whatarethecharacteristicsoflimited
partnership?

A:
1. It is formed by compliance with the
statutoryrequirements
2. One or more general partners control
thebusinessandarepersonallyliableto
creditors
3. One or more limited partners
contribute to the capital and share in
the profits but do not participate in the
management of the business and are
not personally liable for partnership
obligations beyond their capital
contributions
4. The limited partners may ask for the
return of their capital contributions
underconditionsprescribedbylaw
5. Partnership debts are paid out of
common fund and the individual
propertiesofgeneralpartners

B.HOWLIMITEDPARTNERSHIPIS
FORMED/AMENDED

Q: What are the essential requirements for the


formationoflimitedpartnership?

A:
1. Certificate of articles of limited
partnership which states the matters
enumerated in Art. 1844, NCC, must be
signedandsworn;and
2. Certificate must be filed for record in
theofficeoftheSEC.

Note: Strict compliance with legal requirements is


notnecessary.Itissufficientthatthereissubstantial
compliance in good faith (Jo Chun v. Pacific
CommercialCo.,G.R.No.19892,Sept.6,1923).

Q:Doesalimitedpartnershiphaveapersonality
separate and distinct from that of the partners?
Whataretheconsequencesofsuch?

A: Yes. The personality of a limited partnership


beingdifferentfromthatofitsmembers,itmust,
on general principle, answer for, and suffer, the
consequence ofitsacts as such an entity capable
of being the subject of rights and obligations. If
the limited partnership failed to pay its
obligations, this partnership must suffer the
consequences of such a failure, and must be
adjudged insolvent. (Campos Rueda & Co. v.
Pacific Commercial Co., et. al, G.R. No. L 18703,
Aug.28,1922)

Q: When is the certificate or articles of limited


partnershipcancelled?

A:
1. Whenthepartnershipisdissolved
2. Whenallthelimitedpartnersceasedto
besuch

Q: When may a certificate or articles of limited


partnershipbeamended?

A:
1. Itmustfallunderthefollowingchanges
andconditions:
a. There is a change in the name of
the partnership or in the amount
or character of the contribution of
anylimitedpartner
b. Apersonissubstitutedasalimited
partner
c. An additional limited partner is
admitted
d. A person is admitted as a general
partner
e. A general partner retires, dies,
becomes insolvent or insane, or is
sentenced to civil interdiction and
the business is continued under
Article1860
f. There is a change in the character
ofthebusinessofthepartnership
g. There is a false or erroneous
statementinthecertificate
h. There is a change in the time as
stated in the certificate for the
dissolution of the partnership or
forthereturnofacontribution
i. A time is fixed for the dissolution
ofthepartnership,orthereturnof

UST GOLDEN NOTES 2011

a contribution, no time having


beenspecifiedinthecertificate
j. The members desire to make a
change in any other statement in
the certificate in order that it shall
accurately represent the
agreement among them (Art.
1864,NCC)

2. Must be signed and sworn to by all of


the members including the new
members if some added; in case of
substitution, the assigning limited
partnermustalsosign

3. MustberecordedintheSEC

LIMITEDPARTNER

Q:Whataretheliabilitiesofalimitedpartner?

A:
354
CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

ASCREDITOR ASTRUSTEE
Deficiencyin
contribution
Specificpropertystatedas
contributedbutnotyet
contributed/wrongfullyreturned
Unpaid
contribution
Money/otherproperty
wrongfullypaid/conveyedtohim
onaccountofhiscontribution

Q: What transactions are allowed or prohibited


inalimitedpartnership?

A:
1. Allowed
a. Grantingloanstopartnership
b. Transacting business with
partnership
c. Receiving pro rata share of
partnership assets with general
creditorsifheisnotalsoageneral
partner

2. Prohibited
a. Receiving/holding partnership
propertyascollateralsecurity
b. Receiving any payment,
conveyance,releasefromliabilityif
itwillprejudicerightof3
rd
persons

Note:Violationoftheprohibitionwillgiverisetothe
presumption that it has been made to defraud
partnershipcreditors.

The prohibition is not absolute because there is no


prohibitionifthepartnershipassetsaresufficientto
discharge partnership liabilities to persons not
claimingasgeneralorlimitedpartners.

Q:Whendoesageneralpartnerneedconsentor
ratificationofallthelimitedpartners?

A:Whenhe:
1. does any act in contravention of the
certificate;
2. does any act which would make it
impossible to carry on the ordinary
businessofthepartnership;
3. confesses judgment against
partnership;
4. possesses partnership property /
assigns rights in specific partnership
property other than for partnership
purposes;
5. admitspersonasgeneralpartner;
6. admits person as limited partner
unlessauthorizedincertificate;or
7. continues business with partnership
property on death, retirement, civil
interdiction, insanity or insolvency of
generalpartnerunlessauthorizedinthe
certificate.

PARTNERSHIPTORT
Q:Whenisthereapartnershiptort?

A:Where:
1. by any wrongful act or omission of any
partner,actingintheordinarycourseof
business of the partnership or with
authority of his copartners, loss or
injuryiscausedtoanyperson,notbeing
apartnerinthepartnership;
2. one partner, acting within the scope of
his apparent authority, receives money
or property from a third person, and
misappliesit;or
3. the partnership, in the course of its
business, receives money or property,
anditismisappliedbyanypartnerwhile
itisinthecustodyofthepartnership.

Note: Partners are solidarily liable with the


partnershipforanypenaltyordamagearisingfroma
partnershiptort.

C.RIGHTSANDOBLIGATIONSOFALIMITED
PARTNER

Q: What are the specific rights of a limited


partner?

A:To:
1. havepartnershipbookskeptatprincipal
placeofbusiness;
2. inspect/copy books at reasonable
hours;

PARTNERSHIP

3. have on demand true and full
information of all things affecting
partnership;
4. have formal account of partnership
affairs whenever circumstances render
itjustandreasonable;
5. ask for dissolution and winding up by
decreeofcourt;
6. receive share of profits/other
compensationbywayofincome;and
7. receive return of contributions,
provided the partnership assets are in
excessofallitsliabilities.

Q:Whoisasubstitutedlimitedpartner?

A:Apersonadmittedtoalltherightsofalimited
partner who has died or assigned his interest in
thepartnership

Q: What are the rights and liabilities of a


substitutedlimitedpartner?

A:
GR: He has all the rights and powers and is
subject to all the restrictions and liabilities of
hisassignor.

XPN: Those liabilities which he was ignorant


of at the time that he became a limited
partner and which could not be ascertained
fromthecertificate

Q:Whataretherequirementsfortheadmission
ofasubstitutedlimitedpartner?

A:
1. All the members must consent to the
assigneebecomingasubstitutedlimited
partner or the limited partner, being
empoweredbythecertificatemustgive
the assignee the right to become a
limitedpartner;
2. The certificate must be amended in
accordancewithArt.1865,NCC;and
3. The certificate as amended must be
registeredintheSEC.

Q: What is the basis of preference given to


limitedpartnersoverotherlimitedpartners?

A: Priority or preference may be given to some


limitedpartnersoverotherlimitedpartnersasto
the:
1. returnoftheircontributions;
355
2. their compensation by way of income;
or
3. anyothermatter.

Note: In the absence of such statement in the


certificate, even if there is an agreement, all limited
partners shall stand on equal footing in respect of
thesematters.

Q: What are the requisites for return of


contributionofalimitedpartner?

A:
1. All liabilities of the partnership have
been paid or if they have not yet been
paid, the assets of the partnership are
sufficienttopaysuchliabilities;
2. The consent of all the members
(general and limited partners) has been
obtained except when the return may
berightfullydemanded;and
3. The certificate of limited partnership is
cancelledoramended

Q: When is the return of contribution of a


limitedpartneramatterofright?

A: When all liabilities of the partnership, except


liabilities to general partners and to limited
partners on account of their contributions, have
been paid or there remains property of the
partnership sufficient to pay them and the
certificate is cancelled or so amended as to set
forththewithdrawalorreduction:
1. onthedissolutionofthepartnership;
2. uponthearrivalofthedatespecifiedin
thecertificateforthereturn;or
3. aftertheexpirationof6monthnoticein
writing given by him to the other
partners if no time is fixed in the
certificate for the return of the
contribution or for the dissolution of
thepartnership.

Note: Even if a limited partner has contributed


property, he has only the right to demand and
receivecashforhiscontribution.Theexceptionsare:
1. When there is stipulation to the contrary
inthecertificate;or
2. Whenallthepartners(generalandlimited
partners)consenttothereturnotherthan
intheformofcash

Q:Whataretheliabilitiesofalimitedpartner?

1. Tothepartnership

A: Since limited partners are not principals in the


transaction of a partnership, their liability as a
rule, is to the partnership, not to the creditors of
the partnership. The general partners cannot,

UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
UST GOLDEN NOTES 2011

356
CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

however waive any liability of the limited


partnerstotheprejudiceofsuchcreditors.

2. To the partnership creditors and other


partners
2. A limited partner is liable for
partnership obligations when he
contributed services instead of only
moneyorpropertytothepartnership
3. When he allows his surname to appear
inthefirmname
4. Whenhefailstohaveafalsestatement
in the certificate corrected, knowing it
tobefalse
5. Whenhetakespartinthecontrolofthe
business
6. When he receives partnership property
as collateral security, payment,
conveyance, or release in fraud of
partnershipcreditors
7. When there is failure to substantially
comply with the legal requirements
governing the formation of limited
partnerships

3. Toseparatecreditors

A: As in a general partnership, the creditor of a


limited partner may, in addition to other
remedies allowed under existing laws, apply to
the proper court for a charging order subjecting
the interest in the partnership of the debtor
partner for the payment of his obligation. (De
Leon, Comments and cases on Partnership,
AgencyandTrust,p.13,2005ed)

Q: What are the requisites for waiver or


compromiseofliabilities?

A:Thewaiverorcompromise:
1. ismadewiththeconsentofallpartners;
and
2. does not prejudice partnership
creditorswhoextendedcreditorwhose
claims arose before the cancellation or
amendmentofthecertificate.

Q: When may a limited partner have the


partnershipdissolved?

A:
1. When his demand for the return of his
contributionisdeniedalthoughhehasa
righttosuchreturn;or
2. When his contribution is not paid
although he is entitled to its return
because the other liabilities of the
partnership have not been paid or the
partnership property is insufficient for
theirpayment.

SUMMARYOFRIGHTSANDOBLIGATIONSOFPARTNERS

GENERALPARTNER LIMITEDPARTNER
Rights
1. Rightinspecificpartnershipproperty
2. Interestinthepartnership(shareintheprofitsandsurplus)
3. Righttoparticipateinthemanagement
4. Right to associate another person with him in his share without
theconsentofotherpartners(subpartnership)
5. Right to inspect and copy partnership books at any reasonable
hour.
6. Right to a formal account as to partnership affairs (even during
existenceofpartnership)
a. if he is wrongfully excluded from partnership business or
possessionofitspropertybyhiscopartners.
b. ifrightexistsunderthetermsofanyagreement.
c. asprovidedinArt.1807,NCC
d. wheneverthecircumstancesrenderitjustandreasonable.
1. To have partnership books kept at
principalplaceofbusiness
2. To inspect/copy books at reasonable
hours
3. To have on demand true and full
information of all things affecting
partnership
4. Tohaveformalaccountofpartnership
affairs whenever circumstances
renderitjustandreasonable
5. To ask for dissolution and winding up
bydecreeofcourt
6. To receive share of profits/other
compensationbywayofincome
7. To receive return of contributions,
providedthepartnershipassetsarein
excessofallitsliabilities
Obligations
Obligationsof partnersamongthemselves

1. Contributionofproperty
2. Contributionofmoneyandmoneyconvertedtopersonaluse
3. Prohibitioninengaginginbusinessforhimself
4. Contributeadditionalcapital
Tothepartnership

Sincelimitedpartnersarenotprincipalsin
thetransactionofapartnership,their
liabilityasarule,istothepartnership,not
tothecreditorsofthepartnership.The
PARTNERSHIP

5. Managingpartnerwhocollectsdebt
6. Partnerwhoreceivesshareofpartnershipcredit
7. Damagestopartnership
8. Renderinformation
9. Accountableasfiduciary
generalpartnerscannot,howeverwaive
anyliabilityofthelimitedpartnerstothe
prejudiceofsuchcreditors.
Obligationsofpartnersto3
rd
persons

1. Every partnership shall operate under a firm name. Persons who


include their names in the partnership name even if they are not
membersshallbeliableasapartner
2. All partners shall be liable for contractual obligations of the
partnership with their property, after all partnership assets have
beenexhausted:
a. Prorata
b. Subsidiary
3. Admission or representation made by any partner concerning
partnership affairs within the scope of his authority is evidence
againstthepartnership
4. Notice to partner of any matter relating to partnership affairs
operatesasnoticetopartnershipexceptincaseoffraud:
a. Knowledgeofpartneractingintheparticularmatteracquired
whileapartner
b. Knowledgeofthepartneractingintheparticularmatterthen
presenttohismind
c. Knowledge of any other partner who reasonably could and
shouldhavecommunicatedittotheactingpartner
5. Partnersandthepartnershiparesolidarilyliableto3
rd
personsfor
thepartner'stortorbreachoftrust
6. Liabilityofincomingpartnerislimitedto:
a. Hisshareinthepartnershippropertyforexistingobligations
b. Hisseparatepropertyforsubsequentobligations
7.Creditorsofpartnershiparepreferredinpartnershipproperty&may
attachpartner'sshareinpartnershipassets
Tothepartnershipcreditorsandother
partners

1. A limited partner is liable for


partnership obligations when he
contributed services instead of only
moneyorpropertytothepartnership
2. When he allows his surname to
appearinthefirmname
3. When he fails to have a false
statement in thecertificate corrected,
knowingittobefalse
4. When he takes part in the control of
thebusiness
5. When he receives partnership
property as collateral security,
payment, conveyance, or release in
fraudofpartnershipcreditors
6. When there is failure to substantially
comply with the legal requirements
governing the formation of limited
partnerships
Otherobligations

5. Duty to render on demand true and full information affecting


partnership to any partner or legal representative of any
deceasedpartnerorofanypartnerunderlegaldisability.
6. Dutytoaccounttothepartnershipasfiduciary.
Toseparatecreditors

Asinageneralpartnership,thecreditorof
alimitedpartnermay,inadditiontoother
remediesallowedunderexistinglaws,
applytothepropercourtforacharging
ordersubjectingtheinterestinthe
partnershipofthedebtorpartnerforthe
paymentofhisobligation.

357
UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
UST GOLDEN NOTES 2011

AGENCY

Q:Whatiscontractofagency?

A:Bycontractofagencyapersonbindshimselfto
render some service or to do something in
representation or on behalf of another, with the
consentorauthorityofthelatter.(Art.1868NCC)

Q: What are the characteristics of a contract of


agency?

A:BUNCPP
1. Bilateral If it is for compensation
because it gives rise to reciprocal rights
andobligations
2. Unilateral If gratuitous, because it
creates obligations for only one of the
parties
3. Nominate
4. Consensual It is perfected by mere
consent
5. Principal
6. Preparatory It is entered into as a
meanstoanend

358
CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

Q:Whataretheclassificationsofagency?

A:
1. Astomannerofcreation
a. Express agent has been actually
authorized by the principal, either
orallyorinwriting
b. Implied agency is implied from
the acts of the principal, from his
silence or lack of action or his
failure to repudiate the agency,
knowing that another person is
acting on his behalf without
authority

2. Astocharacter
a. Gratuitous agent receives no
compensationforhisservices
b. Onerous agent receives
compensationforhisservices

3. Astoextentofbusinessoftheprincipal
a. Generalagencycomprisesallthe
businessoftheprincipal
b. Special agency comprises one or
morespecifictransactions

4. Astoauthorityconferred
a. Couchedingeneraltermsagency
is created in general terms and is
deemed to comprise only acts in
the name and representation of
theprincipal
b. Simple or commission agent acts
in his own name but for the
accountoftheprincipal

Q: What are the essential elements of an


agency?

A:CORS
1. Consent (express or implied) of the
partiestoestablishtherelationship;
2. TheObjectistheexecutionofajuridical
actinrelationtothirdpersons;
3. The agent acts as a Representative and
notforhimself;and
4. The agent acts within the Scope of his
authority.

Q: Are there any formal requirements in the


appointmentofanagent?

A:
GR: There are no formal requirements
governingtheappointmentofanagent.

XPN:Whenthelawrequiresaspecificform.

i.e.whensaleoflandoranyinteresttherein
isthroughanagent,theauthorityofthelatter
must be in writing; otherwise, the sale shall
bevoid(Art.1874,NCC)

Q: Who are the parties to a contract of agency?


Distinguish.

A:
1. Principal One whom the agent
represents and from whom he derives
authority; he is the one primarily
concernedinthecontract.
2. Agent One who represents the
principalinatransactionorbusiness.

Note: From the time the agent acts or transacts the


business for which he has been employed in
representation of another, a third party is added to
the agency relationship the party with whom the
business is transacted. (De Leon, Comments and
Cases on Partnership, Agency, and Trust, p. 352,
2005ed)

Q: What is the nature of the relationship


betweenprincipalandagent?

A: It is fiduciary in nature that is based on trust


andconfidence.

AGENCY

Q:Whatarethequalificationsofaprincipal?

A:
1. Naturalorjuridicalperson
2. Hemusthavecapacitytoact

Note: If aperson is capacitated to act forhimself or


hisownright,hecanactthroughanagent.

Insofar as third persons are concerned, it is enough


that the principal is capacitated. But insofar as his
obligations to his principal areconcerned, the agent
mustbeabletobindhimself.

Q:Whatisthetermjointprincipals?

A: Two or more persons appoint an agent for a


common transaction or undertaking. (Art. 1915,
NCC)

Q:Whataretherequisitesforsolidaryliabilityof
jointprincipals?

A:
1. Therearetwoormoreprincipals;
2. They have all concurred in the
appointmentofthesameagent;and
3. Agent is appointed for a common
transactionorundertaking.(DeLeon,p.
604,2005ed)

Q:Whatarethekindsofagents?

A:
1. Universal agent one employed to do
all acts which the principal may
personally do, and which he can
lawfully delegate to another the power
ofdoing
2. General agent one employed to
transact all business of the principal, or
allthebusinessofaparticularkindorin
aparticularplace,doallactsconnected
with a particular trade, business or
employment
3. Special or particular agent one
authorized to do act in one or more
specific transactions or to do one or
more specific acts or to act upon a
particularoccasion

Q:Canagencybecreatedbynecessity?

A:No.Whatiscreatedisadditionalauthorityin
anagentappointedandauthorizedbeforethe
emergencyarose.
359

Q:Whataretherequisitesfortheexistenceof
agencybynecessity?

A:
1. Realexistenceofemergency
2. Inability of the agent to communicate
withtheprincipal
3. Exercise of additional authority is for
theprincipalsprotection
4. Adoption of fairly reasonable means,
premisesdulyconsidered

Q:Whatistheruleregardingdoubleagency?

A:
GR:Itisdisapprovedbylawforbeingagainst
publicpolicyandsoundmorality.

XPN:Wheretheagentactedwithfull
knowledgeandconsentoftheprincipals.

Q: A granted B the exclusive right to sell his


brandofMaongpantsinIsabela,thepriceforhis
merchandise payable within 60 days from
delivery, and promising B a commission of 20%
on all sales. After the delivery of the
merchandisetoBbutbeforehecouldsellanyof
them,BsstoreinIsabelawascompletelyburned
without his fault, together with all of A's pants.
MustBpayAforthelostpants?Why?

A: The contract between A and B is a sale not an


agency to sell because the price is payable by B
upon 60daysfrom delivery even if B is unable to
resell it. If B were an agent, he is not bound to
pay the price if he is unable to resell it. As a
buyer, ownership passed to B upon delivery and,
under Art. 1504, NCC, the thing perishes for the
owner. Hence, B must still pay the price. (1999
BarQuestion)

Q: Is mere representation of an alleged agent


sufficient to prove the existence of a principal
agentrelationship?

A: No. The declarations of the agent alone are


generally insufficient to establish the fact or
extent of agency. It is a settled rule that the
persons dealing with the assumed agent are
bound at their peril, if they would hold the
principals liable, to ascertain not only the fact of
agency but also the nature and extent of
authority, and in case either is controverted, the
burden of proof is upon them to establish it.
(Spouses Yu v. Pan American World Airways, Inc.,
G.R.No.123560,Mar.27,2000)

UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
UST GOLDEN NOTES 2011

Q: A foreign manufacturer of computers and a


Philippine distributor entered into a contract
whereby the distributor agreed to order 1,000
units of the manufacturer's computers every
month and to resell them in the Philippines at
the manufacturer's suggested prices plus 10%.
All unsold units at the end of the year shall be
bought back by the manufacturer at the same
pricetheywereordered.Themanufacturershall
hold the distributor free and harmless from any
claim for defects in the units. Is the agreement
oneforsaleoragency?

A: The contract is one of agency not sale. The


notionofsaleisnegatedbythefollowingindicia:
(1)thepriceisfixedbythemanufacturerwiththe
10%markupconstitutingthecommission;(2)the
manufacturer reacquires the unsold units at
exactly the same price; and (3) warranty for the
units was borne by the manufacturer. The
foregoing indicia negate sale because they
indicate that ownership over the units was never
intended to transfer to the distributor. (2000 Bar
Question)
360
CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

II.POWERS

Q: What are the kinds of agency as to extent of


powersconferred?

A:Anagencymaybecouchedingeneraltermsor
couchedinspecificterms.

Q:Whatisanagencycouchedingeneralterms?

A: One which is created in general terms and is


deemed to comprise only acts of administration
(Art.1877,NCC).

Q:Whenisanexpresspowernecessary?

A: It is necessary to perform any act of strict


ownership.

Q:Whatismeantbyactsofadministration?

A: Those which do not imply the authority to


alienate for the exercise of which an express
powerisnecessary.

Q:Whenispaymentanactofadministration?

A: When payment is made in the ordinary course


ofmanagement.

Q: When are making gifts an act of


administration?

A: The making of customary gifts for charity, or


those made to employees in the business
managed by the agent are considered acts of
administration.

Q: P granted to A a special power to mortgage


theformersrealestate.Byvirtueofsaidpower,
A secured a loan from C secured by a mortgage
onsaidrealestate.IsPpersonallyliableforsaid
loan?

A: No. A special power to mortgage property is


limited to such authority to mortgage and does
not bind the grantor personally to other
obligations contracted by the grantee in the
absence of any ratification or other similar act
thatwouldestopthegrantorfromquestioningor
disowning such other obligations contracted by
thegrantee.

A.TOBINDPRINCIPAL

Q: When is the act of an agent binding to the


principal?

A:
1. When the agent acts as such without
expressly binding himself or does not
exceed the limits of his authority. (Art.
1897)
2. If principal ratifies the act of the agent
which exceeded his authority. (Art.
1898)
3. Circumstances where the principal
himself was, or ought to have been
aware.(Art.1899)
4. If such act is within the terms of the
powerofattorney,aswritten.(Art.1900
&1902)
5. Principalhasratified,orhassignifiedhis
willingnesstoratifytheagentsact.(Art
1901)

Q: Does knowledge of a fact by an agent bind


theprincipal?

A:
GR: Knowledge of agent is knowledge of
principal.

XPNs:
1. Agents interests are adverse to those
oftheprincipal;
2. Agents duty is not to disclose the
information (confidential information);
or
3. Where the person claiming the benefit
of the rule colludes with the agent to

AGENCY

361
UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
defraud the principal. (De Leon,
Comments and Cases on Partnership,
Agency,andTrust,p.367,2005ed)

Q:Whataretheeffectsoftheactsofanagent?

A:
1. Withauthority
a. Inprincipalsnamevalid
b. In his own name not binding on
the principal; agent and stranger
are the only parties, except
regarding things belonging to the
principal or when the principal
ratifies the contract or derives
benefittherefrom

2. Withoutauthority
a. In principals name unauthorized
and unenforceable but may be
ratified, in which case, may be
validated retroactively from the
beginning
b. In his own name valid on the
agent,butnotontheprincipal

Q: What are the distinctions between authority


andtheprincipalsinstructions?

A:
AUTHORITY INSTRUCTIONS
Sumtotalofthepowers
committedtotheagent
bytheprincipal
Contemplatesonlya
privateruleofguidance
totheagent;
independentand
distinctincharacter
Relatestothe
subject/businesswith
whichtheagentis
empoweredtodealor
act

Referstothemanneror
modeofagentsaction
Limitationsofauthority
areoperativeasagainst
thosewhohave/charged
withknowledgeofthem
Withoutsignificanceas
againstthosewith
neitherknowledgenor
noticeofthem
Contemplatedtobe
madeknowntothird
personsdealingwiththe
agent
Notexpectedtobe
madeknowntothose
withwhomtheagent
deals

Q: When is the principal bound by the actual or


apparentauthorityoftheagent?

A:Theprincipalisboundbytheactsoftheagent
on his behalf, whether or not the third person
dealingwiththeagentbelievesthattheagenthas
actual authority, so long as the agent has actual
authority,expressorimplied.

Q:Whatisdoctrineofapparentauthority?

A: The principal is liable only as to third persons


who have been led reasonably to believe by the
conductoftheprincipalthatsuchactualauthority
exists,althoughnonehasbeengiven.

Q: What are the distinctions between apparent


authorityandauthoritybyestoppel?

A:
ApparentAuthority AuthoritybyEstoppel
Thatwhichisthough
notactuallygranted,
theprincipal
knowinglypermitsthe
agenttoexerciseor
holdshimoutas
possessing
Ariseswhentheprincipal,
byhisculpablenegligence,
permitshisagentto
exercisepowersnot
grantedtohim,even
thoughtheprincipalmay
havenonoticeor
knowledgeoftheagents
conduct
Foundedinconscious
permissionofacts
beyondthepowers
granted
Foundedontheprincipals
negligenceinfailing
properlytosupervisethe
affairsoftheagent

Q: Can an agent maintain an action against


personswithwhomtheycontractedonbehalfof
hisprincipal?

A:No.Agentsarenotapartywithrespecttothat
contract between his principal and third persons.
As agents, they only render some service or do
somethinginrepresentationor onbehalfoftheir
principals. The rendering of such service did not
make them parties to the contracts of sale
executedinbehalfofthelatter.

The fact that an agent who makes a contract for


his principal will gain or suffer loss by the
performance or nonperformance of the contract
by the principal or by the other party thereto
does not entitle him to maintain an action on his
ownbehalfagainsttheotherpartyforitsbreach.
An agent entitled to receive a commission from
his principal upon the performance of a contract
which he has made on his principal's account
does not, from this fact alone, have any claim
againsttheotherpartyforbreachofthecontract,
either in an action on the contract or otherwise.
An agent who is not a promisee cannot maintain
an action at law against a purchaser merely
because he is entitled to have his compensation
oradvancespaidoutofthepurchasepricebefore
payment to the principal. (Uy v. CA, G.R. No.
120465,Sept.9,1999)

UST GOLDEN NOTES 2011

SUMMARYOFRULES;ACTSOFANAGENT

Inbehalfoftheprincipal,withinthescopeofauthority
1. Bindsprincipal;
2. Agentnotpersonallyliable

Withoutorbeyondscopeofauthority
Contractisunenforceableasagainsttheprincipalbutbindstheagenttothethirdperson

Bindingontheprincipalwhen:
1. Ratifiedor
2. Theprincipalallowedtheagenttoactasthoughhehadfullpowers

Withinthescopeofauthoritybutintheagentsname
1. Notbindingontheprincipal;
2. Principalhasnocauseofactionagainstthe3
rd
partiesandviceversa

Note:Whenthetransactioninvolvesthingsbelongingtotheprincipal:
Remedyoftheprincipaldamagesforagentsfailuretocomplywiththeagency

Withinthescopeofthewrittenpowerofattorneybutagenthasactuallyexceededhisauthorityaccording
toanunderstandingbetweenhimandtheprincipal
1. Insofaras3
rd
personsareconcerned(notrequiredtoinquirefurtherthanthetermsofthewritten
power,agentactedwithinscopeofhisauthority;
2. Principalestopped

Withimpropermotives
Motiveisimmaterial;aslongaswithinthescopeofauthority,valid

Withmisrepresentationsbytheagent
1. Authorizedprincipalstillliable
2. Beyondthescopeoftheagentsauthority
GR:Principalnotliable

XPN:Principaltakesadvantageofacontractorreceivesbenefitsmadeunderfalserepresentationofhis
agent

Mismanagementofthebusinessbytheagent
1. Principalstillresponsiblefortheactscontractedbytheagentwithrespectto3
rd
persons;
2. Principal,however,mayseekrecoursefromtheagent

Tortcommittedbytheagent
Principalcivillyliablesolongasthetortiscommittedbytheagentwhileperforminghisdutiesinfurtherance
oftheprincipalsbusiness

Agentingoodfaithbutprejudices3
rd
parties
Principalisliablefordamages

362
CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

B.EXCEPTION

Q:Whenistheactofanagentnotbindingtothe
principal?

A:Ifanagentactsinhisownname.Insuchcase,
theagentistheonedirectlyboundinfavorofthe
person with whom he has contracted, as if the
transactionwerehisown.(Art.1883,NCC)

AGENCY

III.EXPRESSVS.IMPLIEDAGENCY

Q:Distinguishexpressandimpliedagency.

363
UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
A:

EXPRESSAGENCY IMPLIEDAGENCY
Astodefinition
Onewheretheagent
hasbeenactually
authorizedbythe
principal,eitherorally
orinwriting
Onewhichisimpliedfrom
theactsoftheprincipal,
Astoauthority
Whenitisdirectly
conferredbywords
Whenitisincidentaltothe
transactionorreasonably
necessarytoaccomplishthe
purposeoftheagency,and
therefore,theprincipalis
deemedtohaveactually
intendedtheagentto
possess

Q:Distinguishagencyfromguardianship.

A:
AGENCY GUARDIANSHIP
Agentrepresentsa
capacitatedperson
Guardianrepresentsan
incapacitatedperson
Agentderives
authorityfromthe
principal
Guardianderivesauthority
fromthecourt
Agentisappointedby
theprincipalandcan
beremovedbythe
latter
Guardianisappointedby
thecourt,andstandsin
locoparentis
Agentissubjectto
directionsofthe
principal

Guardianisnot subjectto
thedirectionsoftheward,
butmustactforthewards
benefit
Agentcanmakethe
principalpersonally
liable
Guardianhasnopowerto
imposepersonalliability
ontheward

Q: Distinguish agency from judicial


administration.

A:
AGENCY JUDICIALADMINISTRATION
Agentisappointed
bytheprincipal
JudicialAdministratoris
appointedbythecourt
Representsthe
principal
Representsnotonlythe
courtbutalsotheheirsand
creditorsoftheestate
Agentdoesnotfile
abond
JudicialAdministratorfilesa
bond
Agentiscontrolled
bytheprincipal
thrutheagreement
Hisactsaresubjectto
specificordersfromthe
court
Q:Distinguishagencyfromleaseofservices.

A:
AGENCY LEASEOFSERVICES
Agentrepresentsthe
principal

Workerorlessorof
servicesdoesnot
representhisemployer
Relationshipcanbe
terminatedatthewill
ofeitherprincipalor
agent
Generally,relationship
canbeterminatedonly
atthewillofboth
Agentexercises
discretionarypowers
Employeehasministerial
functions

Q:Distinguishagencyfromtrust.

A:
AGENCY TRUST
Agentusuallyholds
notitleatall
Trusteemayholdlegal
titletotheproperty
Agentusuallyactsin
thenameofthe
principal
Trusteemayactinhis
ownname
Agencyusuallymay
beterminatedor
revokedanytime
Trustusuallyendsbythe
accomplishmentofthe
purposesforwhichitwas
formed
Agencymaynotbe
connectedatallwith
property
Trustinvolvescontrol
overproperty
Agenthasauthority
tomakecontracts
whichwillbebinding
onhisprincipal
Trusteedoesnot
necessarilyoreven
possesssuchauthorityto
bindthetrustororthe
cestuiquetrust
Agencyisreallya
contractualrelation

Trustmaybetheresultof
acontract,itmayalsobe
createdbylaw

IV.AGENCYBYESTOPPEL

Q:Whenisthereanagencybyestoppel?

A: When one leads another to believe that a


certain person is his agent, when as a matter of
fact such is not true, and the latter acts on such
misrepresentation, the former cannot disclaim
liability,forhehascreatedanagencybyestoppel.
(Paras, Civil Code of the Philippines Annotated,
Vol.V,p.558,6
th
ed)

Q:Whataretherulesregardingestoppelin
agency?

A:
1. Estoppel of agent One professing to
act as agent for another may be

UST GOLDEN NOTES 2011

364
CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

estopped to deny his agency both as


against his asserted principal and the
third persons interested in the
transactioninwhichheengaged.

2. Estoppelofprincipal
a. As to agent One who knows that
another is acting as his agent and
fails to repudiate his acts, or
accepts the benefits, will be
estopped to deny the agency as
againsttheother.
b. As to subagent To estop the
principal from denying his liability
to a third person, he must have
known or be charged with
knowledge of the fact of the
transaction and the terms of the
agreement between the agent and
subagent.
c. As to third persons One who
knowsthatanotherisactingashis
agent or permitted another to
appearashisagent,totheinjuryof
third persons who have dealt with
theapparentagentassuchingood
faith and in the exercise of
reasonable prudence, is estopped
todenytheagency.

3. Estoppel of third persons A third


person, having dealt with one as agent
maybeestoppedtodenytheagencyas
against the principal, agent, or third
personsininterest.

4. Estoppel of the government The


government is neither estopped by the
mistake or error on the part of its
agents.

Q:Distinguishimpliedagencyfromagencyby
estoppel.

A:
IMPLIEDAGENCY AGENCYBYESTOPPEL
Astoliabilitybetweenprincipalandagent
Agentisatrueagent,
withrightsandduties
ofanagent
Ifcausedbytheagent,he
isnotconsideredatrue
agent,hence,hehasno
rightsassuch
Astoliabilitytothirdpersons
1. The principal is
alwaysliable
2. The agent is never
personallyliable
1. If caused by the
principal, he is liable,
but only if the 3
rd

person acted on the


misrepresentation;
2. If caused by the agent
alone,onlytheagentis
liable

V.GENERALvs.SPECIALAGENCY

Q:Distinguishageneralagentfromaspecial
agent?

A:
GeneralAgent SpecialAgent
ScopeofAuthority
Allactsconnectedwith
thebusinessor
employmentinwhichhe
isengaged
Specificactsin
pursuanceofparticular
instructionsorwith
restrictionsnecessarily
impliedfromtheactto
bedone
NatureofServiceAuthorized
Involvescontinuityof
service
Nocontinuityofservice
ExtenttowhichtheAgentmayBindthePrincipal
Maybindhisprincipalby
anactwithinthescope
ofhisauthorityalthough
itmaybecontrarytothe
lattersspecial
instructions
Cannotbindhisprincipal
inamannerbeyondor
outsidethespecificacts
whichheisauthorizedto
perform
TerminationofAuthority
Apparentauthoritydoes
notterminatebymere
revocationofhis
authoritywithoutnotice
tothethirdparty
Dutyimposeduponthe
thirdpartytoinquire
makesterminationofthe
relationshipeffective
uponrevocation
ConstructionofPrincipalsInstruction
Merelyadvisoryin
nature
Strictlyconstruedasthey
limittheagents
authority

Q:Whoisafactor/commissionagent?

A: It is one engaged in the purchase and sale of


personal property for a principal, which, for this
purpose,hastobeplacedinhispossessionandat
hisdisposal.

Q:Whoisabroker?

A: He is a middleman or intermediary who in


behalf of others and for a commission or fee
negotiates contracts/transactions relating to real
orpersonalproperty.

Q:Whatisfactorage?

A: It is the compensation of a factor or


commissionagent.

AGENCY

Q:Whatisordinarycommission?

A: It is the compensation for the sale of goods


which are placed in the agents possession or at
hisdisposal

Q:Whatisguarantycommission?

A:Itisthefeewhichisgiveninreturnfortherisk
that the agent has to bear in the collection of
credits.

365
UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
VI.AGENCYCOUCHEDINGENERALTERMS

Q:Whatisanagencycouchedingeneralterms?

A:Onewhichiscreatedingeneraltermsandis
deemedtocompriseonlyactsofadministration
(Art.1877,NCC).

VII.AGENCYREQUIRINGSPECIALPOWEROF
ATTORNEY

Q:Whatisspecialpowerofattorney(SPA)?

A: It is an instrument in writing by which one


person,asprincipal,appointsanotherashisagent
and confers upon him the authority to perform
certainspecifiedactsorkindsofactsonbehalfof
the principal; primary purpose is to evidence
agents authority to third parties within whom
theagentdeals.

Q: Should SPA be in writing and notarized in


ordertobevalid?

A:No.SPAisnotrequiredtobeinwritingand
neednotbenotarizedinordertobevalid.(De
Leon,CommentsandCasesonPartnership,
Agency,andTrust,p.443,2005ed)

Q:Istheinterventionofanotarypublicrequired
forthevalidityofanSPA?

A:
GR: A power of attorney is valid although no
notary public intervened in its execution.
(Barrettov.Tuason,G.R.Nos.L36811,36827,
36840, 36872, Mar. 31, 1934) (De Leon, p.
443,2005ed)

XPN: When SPA is executed in a foreign


country, it must be certified and
authenticatedaccordingtotheRulesofCourt,
particularlySec.25,Rule132.

Note: When the special power of attorney is


executed and acknowledged before a notary public
or other competent official in a foreign country, it
cannot be admitted in evidence unless it is certified
as such in accordance with the foregoing provision
of the rules by a secretary of embassy or legation,
consulgeneral,consul,viceconsul,orconsularagent
or by any officer in the foreign service of the
Philippinesstationedintheforeigncountryinwhich
the record is kept of said public document and
authenticated by the seal of his office. (Medina v.
Natividad,G.R.No.177505,Nov.27,2008)

The failure to have the special power of attorney


(executed in a foreign country) authenticated is not
merelyatechnicalityitisaquestionofjurisdiction.
Jurisdiction over the person of the real partyin
interestwasneveracquiredbythecourts.(Ibid.)

Q:Whenisaspecialpowernecessary?

A:CALLMOSPRINGCOW

1. to Create or convey real rights over


immovableproperty;
2. ConveyorAcquireimmovable
3. to Loan or borrow money, unless the
latter act be urgent and indispensable
forthepreservationofthethingswhich
areunderadministration;
4. to Lease any real property to another
personformorethanoneyear;
5. to Make such Payments as are not
usually considered as acts of
administration;
6. to Obligate principal as guarantor or
surety
7. to bind the principal to render some
Servicewithoutcompensation;
8. to bind the principal in a contract of
Partnership;
9. to Ratify obligations contracted before
theagency
10. toAcceptorrepudiateanInheritance
11. EffectNovation
12. to make Gifts, except customary ones
forcharityorthosemadetoemployees
inthebusinessmanagedbytheagent
13. Compromise, Arbitration and
ConfessionofJudgment
14. anyOtheractofstrictdominion
15. Waiveanobligationgratuitously

Q:Whatarethelimitationstoaspecialpowerof
attorney?

A:
1. A special power to sell excludes the
powertomortgage
2. A special power to mortgage does not
include the power to sell (Art. 1879,
NCC)

UST GOLDEN NOTES 2011

3. A special power to compromise does


not authorize submission to arbitration
(Art.1880,NCC)

366
CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

VIII.AGENCYBYOPERATIONOFLAW

Q: When is an agency created by operation of


law?

A: When the agent withdraws from the agency


for a valid reason, he must continue to act until
theprincipalhashadareasonableopportunityto
take the necessary steps like the appointment of
a new agent to remedy the situation caused by
thewithdrawal.(Art.1929,NCC)

IX.RIGHTSANDOBLIGATIONSOFPRINCIPAL

Q: What are the obligations of the principal to


theagent?

A:To:
1. comply with all obligations which the
agent may have contracted within the
scopeofhisauthority(Art.1910,NCC);
2. advance to the agent, should the latter
so request, the sums necessary for the
execution of the agency (Art. 1912,
NCC);
3. reimburse the agent for all advance
madebyhim,providedtheagentisfree
fromfault(Ibid.);
4. indemnify the agent for all damages
which the execution of the agency may
have caused the latter without fault or
negligence on his part (Art. 1913, NCC);
and
5. paytheagentthecompensationagreed
upon, or if no compensation was
specified, the reasonable value of the
agents services. (De Leon, Comments
and Cases on Partnership, Agency, and
Trust,pp.545555,2005ed)

Q: Is the principal liable for the expenses


incurredbytheagent?

A:
GR:Yes.

XPNs:
1. If the agent acted in contravention of
the principal's instructions, unless
principal derives benefits from the
contract;
2. When the expenses were due to the
faultoftheagent;
3. When the agent incurred them with
knowledge that an unfavorable result
would ensue, if the principal was not
awarethereof;or
4. When it was stipulated that the
expenseswouldbebornebytheagent,
orthatthelatterwouldbeallowedonly
acertainsum.

Q:Whatistheliabilityoftheprincipalregarding
contractsenteredintobytheagent?

A:
GR: The principal must comply with all the
obligations which the agent may have
contractedwithinthescopeofhisauthority.

XPN:Wheretheagentexceededhisauthority.

XPNtotheXPN:Whentheprincipalratifiesit.

Note: Even if the agent has exceeded his authority,


the principal is solidarily liable with the agent if the
formerallowedthelattertoactasthoughhehadfull
powers(Art.1911,NCC)

Q: CX executed a special power of attorney


authorizing DY to secure a loan from any bank
and to mortgage his property covered by the
owners certificate of title. In securing a loan
from M Bank, DY did not specify that he was
actingforCXinthetransactionwiththebank.Is
CXliableforthebankloan?

A: While as a general rule the principal is not


liableforthecontractenteredintobyhisagentin
case the agent acted in his own name without
disclosinghisprincipal,suchruledoesnotapplyif
the contract involves a thing belonging to the
principal.Insuchcase,theprincipalisliableunder
Art. 1883, NCC. The contract is deemed made in
his behalf. (SyJuco v. SyJuco, G.R. No. L13471,
Jan.12,1920)(2004BarQuestion)

Q: What is the liability of the principal for tort


committedbytheagent?

A:
GR: Where the fault or crime committed by
the agent is not in the performance of an
obligation of the principal, the latter is not
boundbytheillicitactsoftheagent,evenifit
isdoneinconnectionwiththeagency.

XPNs:
1. Where the tort was committed by the
agent because of defective instructions
from the principal or due to lack of

AGENCY

necessaryvigilanceorsupervisiononhis
part;or
2. When the tort consists in the
performance of an act which is within
the powers of an agent but becomes
criminal only because of the manner in
which the agent has performed it; the
principal is civilly liable to 3rd persons
whoactedingoodfaith.

Q:Whenistheprincipalnotboundbytheactof
theagent?

A:
1. GR: When the act is without or beyond
the scope of his authority in the
principalsname.

XPNs:
a. Where the acts of the principal
have contributed to deceive a 3
rd

personingoodfaith
b. Where the limitation upon the
power created by the principal
couldnothavebeenknownbythe
3
rd
person
c. Where the principal has placed in
thehandsoftheagentinstruments
signedbyhiminblank
d. Where the principal has ratified
theactsoftheagent

2. Whentheactiswithinthescopeofthe
agents authority but in his own name,
except when the transaction involves
thingsbelongingtotheprincipal.

Note:Thelimitsoftheagentsauthorityshallnotbe
consideredexceededshouldithavebeenperformed
in a manner more advantageous to the principal
thanthatspecifiedbyhim.

RESPONSIBILITIESANDOBLIGATIONSOFAN
AGENT

Q: What are the specific obligations of an agent


totheprincipal?

A:CAFOFANALADRIPBIR
1. Carry out the agency which he has
accepted
2. Answer for damages which through his
nonperformance the principal may
suffer
3. Finish the business already begun on
the death of the principal should delay
entailanydanger
367
4. Observe the diligence of a good father
of a family in the custody and
preservation of the goods forwarded to
himbytheownerincasehedeclinesan
agency,untilanagentisappointed(Art.
1885,NCC)
5. advance the necessary Funds should
there be a stipulation to do so (Art.
1886,NCC)
6. Act in accordance with the instructions
of the principal, and in default thereof,
to do all that a good father of a family
woulddo(Art.1887,NCC)
7. Not to carry out the agency of its
execution would manifestly result in
loss or damage to the principal (Art.
1888,NCC)
8. Answer for damages if there being a
conflictbetweenhisinterestsandthose
of the principal, he should prefer his
own(Art.1889,NCC)
9. not to Loan to himself if he has been
authorized to lend money at interest
(Art.1890,NCC)
10. render an Account of his transactions
andtodelivertotheprincipalwhatever
he may have received by virtue of the
agency(Art.1891,NCC)
11. Distinguish goods by countermarks and
designate the merchandise respectively
belonging to each principal, in the case
of a commission agent who handles
goodsofthesamekindandmark,which
belong to different owners (Art. 1904,
NCC)
12. be Responsible in certain cases for the
acts of the substitute appointed by him
(Art.1890,NCC)
13. Pay interest on funds he has applied to
hisownuse(Art.1896,NCC)
14. Inform the principal, where an
authorized sale of credit has been
made,ofsuchsale(Art.1906,NCC)
15. Bear the risk of collection and pay the
principaltheproceedsofthesaleonthe
same terms agreed upon with the
purchaser, should he receive also on
sale, a guarantee commission (Art.
1907,NCC)
16. Indemnifytheprincipalfordamagesfor
his failure to collect the credits of his
principal at the time that they become
due(Art.1908,NCC)
17. be Responsible for fraud or negligence
(Art. 1909, NCC; De Leon, Comments
and Cases on Partnership, Agency, and
Trust,pp.478479,2005ed)

Note: Every stipulation exempting the agent from


the obligation to render an account shall be void
(par.2,Art.1891,NCC)

UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
UST GOLDEN NOTES 2011

Q: In case of breach of loyalty, is the agent still


entitledtocommission?

A: No, The forfeiture of the commission will take


place regardless of whether the principal suffers
any injury by reason of such breach of loyalty. It
does not even matter if the agency is for a
gratuitous one, or that the principal obtained
better results, or that usage and customs allow a
receiptofsuchabonus.

Note: An agent has an absolute duty to make a full


disclosure or accounting to his principal of all
transactions and material facts that may have some
relevance with the agency. (Domingo v. Domingo,
G.R.No.L30573,Oct.29,1971)

Q: When is the obligation to account not


applicable?

A:
1. If the agent acted only as a middleman
with the task of merely bringing
togetherthevendorandvendees;
2. If the agent informed the principal of
the gift/bonus/profit he received from
the purchaser and his principal did not
objectthereto;or
3. Where a right of lien exists in favor of
theagent.

Q: What is the responsibility of two or more


agentsappointedsimultaneously?

A:
GR:Jointlyliable.

XPN: Solidarity has been expressly stipulated.


Each of the agents becomes solidarily liable
for:
1. thenonfulfillmentoftheagency;or
2. faultornegligenceofhisfellowagent.

XPN to the XPN: When one of the other


agentsactsbeyondthescopeofhisauthority
innocentagentisnotliable.

Note: An innocent agent has a right later on to


recoverfromtheguiltyornegligentagent.

Q:Whatistherulewithregardtotheexecution
oftheagency?

A:
GR: The agent is bound by his acceptance to
carryouttheagency,andisliablefordamages
which, through his nonperformance, the
principalmaysuffer.
368

XPN:Ifitsexecutioncouldmanifestlyresultin
lossordamagetotheprincipal

Q: What are the instances when the agent may


incurpersonalliability?

A:
1. Agentexpresslyboundhimself;
2. Agentexceedshisauthority;
3. Acts of the agent prevent the
performance on the part of the
principal;
4. When a person acts as agent without
authorityorwithoutaprincipal;or
5. A person who acts as an agent of an
incapacitated principal unless the third
person was aware of the incapacity at
thetimeofthemakingofthecontract.

Q: What is thescope of the agents authority as


tothirdpersons?

A: It includes not only the actual authorization


conferredupontheagentbyhisprincipalbutalso
that which is apparent or impliedly delegated to
him.

Q: Is the third person required to inquire into


theauthorityoftheagent?

A:
1. WhereauthorityisnotinwritingEvery
person dealing with an assumed agent
must discover upon his peril, if he
wouldholdtheprincipalliable,notonly
the fact of the agency but the nature
and extent of the authority of the
agent.
2. Where authority is in writing 3rd
personisnotrequiredtoinquirefurther
than the terms of the written power of
attorney.

Note:Athirdpersonwithwhomtheagentwishesto
contract on behalf of the principal may require the
presentation of the power of attorney or the
instructionsasregardstheagency.

Q: What is the rule with regard to the


advancementoffundsbytheagent?

A:
GR: There must be a stipulation in the
contract that the agent shall advance the
necessaryfunds

XPN:Whentheprincipalisinsolvent.

CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

AGENCY

RIGHTSOFAGENTS

Q:Whataretheinstanceswhentheagentmay
retaininpledgetheobjectoftheagency?

A:
1. If principal fails to reimburse the agent
the necessary sums, including interest,
which the latter advanced for the
execution of the agency (Art. 1912,
NCC);or
369
UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
2. If principal fails to indemnify the agent
for all damages which the execution of
the agency may have caused the latter,
without fault or negligence on his part.
(Art.1913,NCC)

Q: What is the rule where two persons deal


separatelywiththeagentandtheprincipal?

A:Ifthetwocontractsareincompatiblewitheach
other, the one of prior date shall be preferred.
Thisissubjecthowevertotheruleondoublesale
underArt.1544,NCC.

Note:Rulesofpreferenceindoublesale
1. Personal property possessor in good
faith
2. Realproperty
a. Registrantingoodfaith
b. Possessoringoodfaith
c. Person with the oldest title in good
faith(Art.1544,NCC)

If agent acted in good faith, the principal shall be


liable for damages to the third person whose
contractmustberejected.Ifagentisinbadfaith,he
aloneshallbeliable.(Art.1917,NCC)

PROHIBITEDACTSOFANAGENT

Q:Whataretheprohibitedactsofanagent?

A:
1. Personalacts
2. Criminalorillegalacts

Note:e.g.:
1. Righttovote
2. Makingofawill
3. Underoathstatements
4. Attendingboardmeetingsofcorporations.
(DeLeon,p.358,2005ed)

Q: Can a person acting as an agent escape


criminal liability by virtue of the contract of
agency?

A: No. The law on agency has no application in


criminal cases. When a personparticipates in the
commission of a crime, he cannot escape
punishment on the ground that he simply acted
asanagentofanotherparty.(Ongv.CA,G.R.No.
119858,Apr.29,2003)

X.IRREVOCABLEAGENCY

Q:Whenisagencyirrevocable?

A:
1. Ifabilateralcontractdependsuponit
2. if it is the means of fulfilling an
obligationalreadycontracted
3. if partner is appointed managerand his
removal from the management is
unjustifiable.(Art1927)
4. if it has been constituted in the
common interest of the principal and
theagent(Art.1930)
5. Stipulationpouratrui

Q: How may the agent withdraw from the


agency?

A: The agent may withdraw from the agency by


giving due notice to the principal. If the latter
should suffer any damage by reason of the
withdrawal, the agent must indemnify him
therefor, unless the agent should base his
withdrawal upon the impossibility of continuing
the performance of the agency without grave
detrimenttohimself.(1736a)

NOTE: The agent, even if he should withdraw from


the agency for a valid reason, must continue to act
untiltheprincipalhashadreasonableopportunityto
takethenecessarystepstomeetthesituation.

XI.MODESOFEXTINGUISHMENT

Q: What is presumption of continuance of


agency?

A: It means that when once shown to have


existed, an agency relation will be presumed to
havecontinued,intheabsenceofanythingwhich
showsitstermination.

UST GOLDEN NOTES 2011

Q: What are the essential elements for


continuanceofagency?

370
CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

A:Bothprincipalandagentmustbe:
1. Present
2. Capacitated
3. Solvent (De Leon, Comments and Cases
on Partnership, Agency, and Trust, p.
610,2005ed)

Q:Cantheheirscontinuetheagency?

A:
GR:No.

Ratio: The agency calls for personal services


onthepartoftheagentsinceitisfoundedon
a fiduciary relationship; rights and obligations
intransmissible.

XPNs:
1. Agency by operation of law, or a
presumedortacitagency
2. Agency is coupled with an interest in
the subject matter of the agency (e.g.
powerofsaleinamortgage)

Q: What are the modes of extinguishing an


agency?

A:EDWARD
1. Expirationoftheperiod
2. Death, civil interdiction, insanity or
insolvencyofprincipaloroftheagent
3. Withdrawalbytheagent
4. Accomplishment of the object or the
purposeoftheagency
5. Revocation
6. Dissolution of the firm or corporation
which entrusted or accepted the
agency.

Note: The list is not exclusive; May also be


extinguished by the modes of extinguishment of
obligationsingeneralwhenevertheyareapplicable,
likelossofthethingandnovation.

REVOCATION

Q:Isacontractofagencyrevocable?

A:
GR: Yes. Agency is revocable at will by the
principal.

XPNs:Itcannotberevokedif:
1. abilateralcontractdependsuponit
2. itisthemeansoffulfillinganobligation
alreadycontracted
3. a partner is appointed manager of a
partnership and his termination is
unjustifiable
4. it is created not only for the interest of
theprincipalbutalsofortheinterestof
thirdpersons

XPN to the XPN: When the agent acts to


defraudtheprincipal.

Q:Whatarethekindsofrevocation?

A: Revocation may either be express or implied.


(De Leon, Comments and Cases on Partnership,
Agency,andTrust,p.625,2005ed)

Q:Howisagencyimpliedlyrevoked?

A:Principal:
1. appoints a new agent for the same
business or transaction (Art. 1923,
NCC);
2. directly manages the business
entrustedtotheagent(Art.1924,NCC);
or
3. after granting general power of
attorney, grants a special one to
another agent which results in the
revocationoftheformerasregardsthe
special matter involved in the latter.
(Art.1926,NCC)

Q: How is agency revoked when the agent has


beenappointedbytwoormoreprincipals?

A:Anyoneoftheprincipalsisgrantedtherightto
revoke the power of attorney without the
consentoftheothers.

Q:Isnoticeofrevocationnecessary?

A:
1. As to the agent Express notice is not
necessary; sufficient notice if the party
to be notified actually knows, or has
reason to know, a fact indicating that
his authority has been
terminated/suspended; revocation
without notice to the agent will not
renderinvalidanactdoneinpursuance
oftheauthority
2. As to 3
rd
persons Express notice is
necessary
a. As to former customers Actual
notice must be given to them
because they always assume the
continuance of the agency
relationship

AGENCY

b. As to other persons Notice by
publicationisenough

Note: There is implied revocation of the previous


agency when the principal appoints a new agent for
the same business or transaction, provided there is
incompatibility.Buttherevocationdoesnotbecome
effective as between the principal and the agent
untilitisinsomewaycommunicatedtothelatter.

Q: What is the effect of the direct management


bytheprincipal?

A:
GR:Theagencyisrevokedfortherewouldno
longer be any basis for the representation
previously conferred. But the principal must
act in good faith and not merely to avoid his
obligationtotheagent.

XPN: The only desire of the principal is for


him and the agent to manage the business
together.

Q: Richard sold a large parcel of land in Cebu to


Leo for P100 million payable in annual
installments over a period of ten years, but title
willremainwithRicharduntilthepurchaseprice
is fully paid. To enable Leo to pay the price,
Richard gave him a powerofattorney
authorizing him to subdivide the land, sell the
individual lots, and deliver the proceeds to
Richard,tobeappliedtothepurchaseprice.Five
years later, Richard revoked the power of
attorney and took over the sale of the
subdivision lots himself. Is the revocation valid
ornot?Why?

A: The revocation is not valid. The power of


attorneygiventothebuyerisirrevocablebecause
it is coupled with an interest the agency is the
means of fulfilling the obligation of the buyer to
paythepriceoftheland(Art.1927,NCC).Inother
words, a bilateral contract (contract to buy and
sell the land) is dependent on the agency. (2001
BarQuestion)

Q: Eduardo executed a SPA authorizing Zenaida


to participate in the prequalification and
biddingofaNIAprojectandtorepresenthimin
all transactions related thereto. It was granted
to them. Zenaida leased Manuels heavy
equipment to be used for the NIA project.
Manuel interposed no objection to Zenaidas
actuations. Eduardo later revoked the SPA
allegingthatZenaidaactedbeyondherauthority
in contracting with Manuel under the SPA.
Decide.
371
A: No.Eduardo and Zenaida entered into a
partnership with regard to the NIA project. Also,
Eduardo was present when Zenaida contracted
withManuel.UnderArt.1818,NCC,everypartner
is an agent of the partnership for the purpose of
itsbusinessandeachonemayseparatelyexecute
allactsofadministration,unless,underArt.1801,
NCC,aspecificationoftheirrespectivedutieshas
beenagreedupon,orelseitisstipulatedthatany
one of them shall not act without the consent of
all the others. (Mendoza v. Paule, G.R. No.
175885,Feb.13,2009)

DEATH

Q: What is the effect of death of a party to the


contractofagency?

A:
GR: The agencyis terminated by the death of
the principal even if the agency is for a
definiteperiod.

XPNs:
1. If it has been constituted in common
interest of the principal and the agent
or in the interest of the third person
who accepted the stipulation in his
favor;or
2. Anythingdonebytheagentwithoutthe
knowledgeofthedeathoftheprincipal
or on any other cause which
extinguishes the agency is valid and
shall be effective on third persons who
may have contracted with him in good
faith.

Q: Is the sale of the land by the agent after the


deathoftheprincipalvalid?

A:Article1931,NCCprovidesthatanactdoneby
the agent after the death of the principal is valid
andeffectiveifthesetworequisitesconcur:
1. that the agent acted without the
knowledgeofthedeathoftheprincipal;
and
2. that the third person who contracted
with the agent himself acted in good
faith.

Good faith here means that the third person was


not aware of the death of the principal at the
timethathecontractedwithsaidagent.(Rallosv.
FelixGoChan,G.R.No.L24332,Jan.31,1978)

UNIVERSITYOFSANTOTOMAS
Fac ul t a d de De r e c h o Ci v i l
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
UST GOLDEN NOTES 2011

372
CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

CHANGEOFCIRCUMSTANCESSURROUNDING
TRANSACTION

Q:Whatistheeffectofachangeofcircumstance
surroundingthetransaction?

A:
GR:Theauthorityoftheagentisterminated.

XPNs:
1. If the original circumstances are
restored within a reasonable period of
time, the agent's authority may be
revived;
2. Wheretheagenthasreasonabledoubts
as to whether the principal would
desire him to act, his authority will not
beterminatedifheactsreasonably;or
3. Where the principal and agent are in
close daily contact, the agent's
authoritytoactwillnotterminateupon
a change of circumstances if the agent
knows the principal is aware of the
change and does not give him new
instructions. (De Leon, pp. 616617,
2005ed)

WITHDRAWALBYTHEAGENT

Q:Cantheagentwithdrawfromtheagency?

A: Yes. The agent may renounce or withdraw


fromtheagencyatanytime,withouttheconsent
of the principal, even in violation of the latters
contractualrights;subjecttoliabilityforbreachof
contractorfortort.

Q: What are the kinds of withdrawal by the


agent?

A:
3. Without just cause The law imposes
upon the agent the duty to give due
noticetotheprincipalandtoindemnify
the principal should the latter suffer
damagebyreasonofsuchwithdrawal.
4. With just cause The agent cannot be
heldliable.